Are Regulators About to Create Too Big To Fail Hedge Funds?

John Carney is out with his first piece at CNBC. He's reporting on new developments out of the Financial Crisis Inquiry Commission that may result in added burdens for the hedge fund industry.

Carney correctly points out that the new regulations, or even just information seeking, will prove most onerous for smaller hedge funds. This may result in fewer start ups in the industry and mergers of existing firms.

Carney writes:

While requests for information may seem harmless enough on the surface, they create serious legal and compliance costs for hedge funds. Bigger hedge funds and those owned by banks such as Citigroup or JP Morgan Chase can easily bear these costs. They have teams of in-house lawyers and relationships with big law firms ready to handle these issues.

It’s the smaller funds that will feel the sting of FCIC scrutiny. The additional costs make it harder for smaller funds to compete with the big players and create barriers to entry for new funds...The irony is that the anti-competitive effect may cause further consolidation in hedge funds, perhaps creating funds that—like our behemoth megabanks—are too big too fail.

What a surprise, new regulatory environment that benefits the banksters.