Wealthy British scion Zak Goldsmith and investment activist Max Keiser want to take down Coca-Cola Co., and they have added a new twist to the age-old tactic of boycotting: They have opened a hedge fund designed to profit from any decline in the soft drink conglomerate's stock price.
"We're simply picking up on a trend and giving people the tools to use," Keiser said. "The Internet allows people, activists, from all over the world to gather, or swarm, and hit a company where it hurts most -- in their stock price."
Hedge funds are a popular investment option for the wealthy. But creating a hedge fund with a specific social agenda, like the one promoted by Goldsmith and Keiser, is a recent development, according to Doug Wheat, director of business development at SRI World Group, a financial news and data monitoring service in Vermont.
"There are only five or six hedge funds like that," Wheat said. "Meanwhile, there are like 8,000 hedge funds."
A hedge fund is a type of private investment vehicle for wealthy investors who choose to pool their money and invest in securities. Many hedge funds invest in unusual securities in unusual ways. They sometimes assume substantial risks on speculative strategies. This sometimes includes "hedging," or leveraging investments to get the most gain.
Hedge funds are subject to few regulations. The Securities and Exchange Commission requires only that the investors be accredited, meaning that they must earn more than $200,000 per year or have a net worth of more than $1 million. Hedge fund managers are not currently required to register with the SEC.
"We don't get into who's investing," said SEC spokesman John Heine.
But that hands-off approach may change. Regulators started eyeing hedge funds after the 1998 near-collapse of Long-Term Capital Management LP, which lost billions in derivatives trading and created a financial market disaster, necessitating a private-sector bailout organized by the Federal Reserve Bank of New York.
In October, the SEC voted 3 to 2 to increase hedge fund oversight by mandating that hedge fund managers register by February 2006. But on Monday, the head of a New York-based hedge fund, Opportunity Partners LP, sued the SEC in an effort to block the registration requirement.
In public comments dissenting from the adoption of the proposed registration rule, the two Republican commissioners, Cynthia A. Glassman and Paul S. Atkins, questioned whether the registration requirement would be too rigorous on certain issues and too lax on others.