Rep. Richard Baker (R-La.) is expected to announce as early as this week that he will leave Congress to head up the Managed Funds Association, the leading lobbying group for the hedge fund industry, according to several sources close to the negotiations.

The news has been widely anticipated since Jan. 4, when the 11-term Member filed a disclosure with the House Clerk that he was going to start talks with the group. They apparently progressed quickly, and one source close to the negotiations said Baker and the group were down to “final lawyering.”

“It’s expected to be official and announced this week,” the source said.

Baker’s office and the MFA were more circumspect.

Baker spokeswoman Megan Bel said Monday that the lawmaker “has not signed on the dotted line for anything. They’re still in negotiations as of today.” And an MFA spokeswoman would only say talks are continuing.

Baker earlier this month told The (Baton Rouge) Advocate that he would make a decision about the job before today, and, if he decided to take it, would step down within a month to avoid any appearance of a conflict of interest.

The development will come as welcome news for Democrats, who are rallying behind the candidacy of state Rep. Don Cazayoux. But while Baker’s departure sets up a scramble among potential GOP replacements, the district has been solidly Republican.

Baker will become president of the MFA at a time when the industry is facing heightened scrutiny from a Democratic-led Congress looking for new sources of funds to meet their own pay-as-you-go budget rules.

The House in December passed a bill that would have limited the ability of hedge fund managers to defer taxes on their pay by keeping it in offshore shelters. The provision, aimed at helping cover the cost of alternative minimum tax relief for middle-class taxpayers, is likely to be resurrected this year.

Most financial services lobbyists said Baker is more than up for the challenge.

Elected in 1986, he has served since 2001 as the top Republican on the Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises.

Last year, he mounted a campaign for the chairmanship of the full panel. But Baker lost what became a contest for ranking member to the more junior Rep. Spencer Bachus (R-Ala.) amid quiet gripes from top House Republicans that he sometimes bucked leadership and didn’t raise enough money for the party.

His backers said he has a rare command of the details in policy debates and an ability to reach across the aisle to find consensus. “Not since Lloyd Bentsen has Congress seen a member that gets financial services policy, politics and the nexus of the two,” said Phil Anderson, a longtime friend and partner at Navigators LLC, referring to the former Senate Finance chairman who died in 2006. “Baker will be a high-impact player from day one.”

Democratic consultant Penny Rostow, who counts hedge funds among her clients, called Baker a “terrific choice. Not only does he know capital markets and security products as well as anyone in Washington, but he’s worked well with both Republicans and Democrats, and counts many Democrats as friends.”

But one Democratic financial services industry lobbyist, speaking on background, questioned the MFA’s decision to hire a Republican. “Democrats are going to expand their control in both the House and Senate and have a better than 50 percent chance of winning the White House. So why they’re hiring a Republican mystifies me.”

Back in Baker’s district, Democrat Cazayoux has already been lining up support among state and national party leaders and, just last week, officially announced his intention to challenge Baker.

“We’re getting a lot of encouragement and we’re exciting about running for the seat,” said Cazayoux. “He would have been a tough opponent and certainly we take the news with optimism.”

Democratic Congressional Campaign Committee spokeswoman Kyra Jennings said the DCCC had already targeted Baker, and was trying to persuade Cazayoux to run “when Baker was heavily stating that he was not leaving.

“So we think a special election in this seat presents a great opportunity for Democrats,” she said.

Cazayoux was first elected as a state representative in 1999 and was among the top names mentioned for Louisiana Speaker after the 2007 state legislative elections. Cazayoux is a practicing attorney who served as a prosecutor in Point Coupee Parish. He hails from New Roads.

Baker’s unexpected departure sets up a bigger scramble on the Republican side of the aisle.

By Monday afternoon, Republicans on Capitol Hill were pushing the names of the Congressman’s former chief of staff, Paul Sawyer, who works for the Louisiana Economic Development, along with state Rep. Hunter Green and former state Rep. Woody Jenkins. Jenkins served almost 30 years in the state House and in 1996 ran for U.S. Senate, taking now-Sen. Mary Landrieu (D) to a runoff before losing the election by less than 6,000 votes.

Baker’s Baton Rouge-based 6th district has historically been reliably Republican territory, with President Bush winning it with 59 percent of the vote in the 2004 election and 55 percent in 2000. In 2006, with no Democratic opposition, the district re-elected Baker with 83 percent of the vote.

But this time around, with a Democrat in the race and thousands of potentially new Democratic voters who moved into Baton Rouge after Hurricane Katrina, it remains to be seen whether the district’s traditional voting patterns will play out in an open-seat race and special election.