MF Global, NYMEX Should Gain From Hedge Fund Industry Growth

Jun.25.07 | About: NYMEX Holdings (NMX)

Just as the "little guy" is finally gaining access to hedge funds (which are traditionally only available to the wealthy), Congress is introducing legislation that could take this access away. Currently, Congress is considering laws (.pdf) that would increase capital gains taxes on public (and possibly private) hedge funds. This would impact hedge funds like Blackstone Group (NYSE:BX), which IPO'd on Friday, Fortress Investment Group (NYSE:FIG), which IPO'd in February, and other hedge funds considering US IPO's by creating incentive to remain private or potentially move out of the US altogether.

Regardless of what happens, there are still ways the "little guy" US investor can profit from the entire hedge fund industry, and I've highlighted a couple examples below.

MF Global
(soon to be MF), the US brokerage arm of UK hedge fund Man Group (London Stock Exchange EMG.L), is expected to float a US IPO during the third week of July. MF Global isn't actually a hedge fund, but it does provide an arsenal of derivatives brokerage services to hedge funds, alternative investment shops, and general derivatives traders. MF Global will benefit as the entire industry continues to grow regardless of whether the growth is domestic, international, public, or private.

NYMEX Holdings (NMX)
generates revenue every time a hedge fund places a derivates trade through one of its subsidiaries (New York Mercantile Exchange and COMEX). New York Mercantile Exchange is the main worldwide marketplace for energy trading (e.g. crude oil, natural gas, heating oil and gasoline), and COMEX is the main worldwide marketplace for metals trading (e.g. gold, silver, copper and aluminum). Hedge funds around the world often utilize energy and metals derivatives as part of their investment strategies. Regardless of the tax incentives Congress creates for private and international hedge funds, publicly traded US stock NMX will still benefit as the entire industry continues to grow.