The insider

Last month Richard Baker, a member of the US House of Representatives, announced he would leave his post to become president and chief executive of the Managed Funds Association (MFA), the principal trade association for hedge funds as well as a lobbying group.

The move comes as hedge funds, like private equity funds, are under fire from legislators on a number of fronts, including the taxation of carried interest, disclosure, the use of offshore entities, registration with the SEC and the taxation of deferred compensation.

Baker, a Republican from Louisiana who served on the House Financial Services Committee, said in a statement: ?I have come to appreciate greatly the vital role played by the alternative investment industry in our economy and the importance of its continued success to the competitiveness of our nation's capital markets.?

In a separate report he said he had been a ?very strong and outspoken advocate for more transparency? in the hedge fund industry, adding that he is a ?very committed, free-market person.?

Baker said: ?I have some abilities the market would find of value. I have been in elective service for 37 years.? Baker will have to observe a one-year ?cooling off? period before he can approach lawmakers on behalf of the MFA.

Last year saw the abrupt rise to prominence of the Private Equity Council, a lobbying group formed by the largest US private equity firms to counter unfavorable legislation on Capitol Hill. The PEC is led by former video-game industry lobbyist Douglas Lowenstein.

Baker will replace Jack Gaine, who led the MFA for the past 10 years. The MFA, based in Washington DC, was established in 1991. It says its members ?represent the vast majority of the largest hedge fund groups in the world who manage a substantial portion of the approximately $2 trillion invested in absolute return strategies.? In a report, Baker declined to say what he would be paid at the MFA.

Refco attorney charged with fraud
Joseph Collins, head of Mayer, Brown, Rowe & Maw's derivatives group, has been indicted on charges of securities fraud. Collins is charged with having helped failed futures broker Refco conceal hundreds of millions of dollars of debt from its investors. ?He was not merely a lawyer whose client was committing fraud and who should have caught on,? said US Attorney Michael Garcia, according to the New York Law Journal. ?Collins instead played an active and crucial part in perpetrating the Refco fraud. Refco was formerly a portfolio company of Thomas H. Lee Partners. After TH Lee took Refco public in 2005, TH Lee discovered that Refco's chief executive officer Phillip Bennett owed the company $430 million in off-the-books receivables. Collins pled not guilty to the charges. ?This indictment should send a chill down the spine of every transactional lawyer who believes he or she is representing an honest client,? Collin's attorney, William Schwartz of Cooley Goward Kronish, reportedly said.

Bush signs Denmark-US tax treaty protocol
President Bush has signed a new protocol amending the 1999 bilateral tax treaty between Denmark and the US. The new protocol eliminates the source-country withholding tax on dividends arising from certain direct investments and on dividends paid to pension funds. Prior to the protocol, the treaty provided for a reduction of the US withholding tax rate to 5 percent if the Danish parent company held at least 10 percent of the voting power of the US subsidiary. Companies that did not meet the 10 percent power test would receive dividends subject to 15 percent US withholding tax. The new protocol also strengthens the 1999 provisions preventing treaty shopping, although a Danish company that has owned at least 80 percent of the voting rights of a US subsidiary for 12 months prior to the declaration of dividends is exempt from US withholding tax.

MAVA elects Updata GP president
The Mid-Atlantic Venture Capital Association has elected John Burton, cofounder and general partner of Updata Partners, as its next president. Updata invests in high-growth software and software-enabled technology companies, and manages around $500 million in venture funds. The firm's fourth fund closed on $225 million last November. Burton also held a variety of executive positions at IT companies for more than 30 years. He was formerly chief executive of Legent Corporation, and co-founder of Business Software Technology. ?For more than two decades MAVA has played a vital role in advancing our region's dynamic growth by creating opportunities for investors and entrepreneurs to interact,? Burton said in a statement. ?That's more important now than ever as the credit markets tighten and innovators in sectors ranging from life sciences to technology to alternative energy seek funds to fuel strategic growth.? Burton succeeds outgoing president Kevin Burns, co-founder of Lazard Technology Partners, who will assume the position of MAVA chairman.

Blackstone paid highest fees to banks in 2007
The Blackstone Group last year paid the largest amount of fees to investment banks for the second year running, despite the fact that the firm paid 8 percent less than it did in 2006, according to data recently released by Dealogic. Blackstone in 2007 paid fees totaling $646 million (€440 million), while Goldman Sachs Capital Partners was the second-largest fee payer at $617 million. TPG ranked third at $537 million, Kohlberg Kravis Roberts ranked fourth at $521 million and Warburg Pincus ranked fifth at $373 million. Fees paid by financial sponsors last year totaled $15.6 billion, or 2 percent less than the previous year, due largely to a sharp drop in activity during the second half of the year as a result of the credit crunch.

Istithmar rebrands
Dubai investment firm Istithmar has rebranded itself as Istithmar World as the group continues to diversify into venture capital, aviation and debt investing, the group's spokesman said. Istithmar World will be divided into three divisions, the private equity arm Istithmar World Capital, the aviation unit Istithmar Aviation and the venture division Istithmar Ventures. The spokesman said the firm's moves into venture and debt investing were in ?an embryonic stage? although details of the firm's plans would be forthcoming. The firm also has a real estate arm.

GPs defend industry practices
The leaders of several private equity firms defended the industry's practices yesterday, on the second day of the American Enterprise Institute's 2007 private equity conference. Brian Simmons of Code Hennessy & Simmons, Tully Friedman of Friedman Fleischer & Lowe, Thomas Putter of Allianz and Rick Rickertsen of Pine Creek Partners were pressed by audience members on issues including accounting guidelines and employment practices at their respective portfolio companies. All four GPs said they feel private equity is being held to higher standards than other industries because of its extreme profitability in recent years. Regarding taxation issues, Simmons said all kinds of businesses make a common practice of structuring themselves ?in the most tax efficient manner possible.? All four stressed that in today's competitive industry financial engineering is no longer enough to guarantee profits; only firms that truly add value to their portfolio companies will survive. The audience at AEI included several members of the US Treasury Department and the Federal Communications Commission.

SEC amends Rules 144 and 145
The Securities and Exchange Commission has adopted amendments to Rules 144 and 145 under the Securities Act of 1933. The amendments to Rule 144 shorten the holding period for restricted securities from one year to six months, allow non-affiliates of reporting companies to resell restricted securities without manner of sale or volume limitations, increase the threshold applicable to Form 144 filing requirements to sales that exceed 5,000 shares or $50,000 within a three-month period, and relax the volume limitations for debt securities by permitting the resale of up to 10 percent of a tranche in any three-month period and eliminating manner of sale requirements for affiliates. The Rule 145 amendments eliminate the presumptive underwriter doctrine, except for transactions involving shell companies, and revise the rule's resale provisions to conform to the Rule 144 changes. The amendments are effective in early February.

FTC fines ValueAct $1.1m
A federal district court has fined ValueAct Partners $1.1 million (€766 million) for failing to notify the Federal Trade Commission before acquiring large stakes in several companies in 2005, according to an FTC statement. The Hart-Scott-Rodino Act imposes notification and waiting period requirements on individuals and companies over a certain size before they acquire stock or assets above a certain value, which was $50 million in 2005. The FTC alleged that ValueAct did not comply with the act's requirements prior to its $248 million investment in IT research company Gartner, its $148 million investment in Catalina Marketing and its $178 million in data management company Acxiom. In 2003 ValueAct committed three similar violations, and ?claimed that it was not aware that it has HSR filing obligations?, the FTC said in a statement, so the agency allowed the firm to make corrective filings. Value Act also was asked to outline steps it would take to prevent similar lapses in the future.