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July 6, 2006
Hedge funds poised for clean bill of health in Brussels
Hedge funds should no longer be taboo for retail investors, pose little or no risk to financial stability and should receive only "light-touch" regulation, the European commission is likely to rule this year.
The commission yesterday published a report from hedge fund practioners including Gartmore, RAB Capital and Goldman Sachs in the UK, which makes a "strong" case, according to Brussels, that the industry has made "a positive contribution to sound functioning of financial markets without receiving intensive scrutiny/oversight from regulators."
The majority of a group of hedge fund managers, representing an industry worth $325bn in the EU and $1.3trillion globally, told the commission it should enable small investors with at least €50,000 assets to put their money into their high-yield funds and encourage the growth of a pan-European sector. A sizeable minority opted for a higher income threshold.
The initially favourable response from within the commission contrasts with the recent dire warning from the European Central Bank that hedge funds were a "major risk" for financial stability as they tended to invest along similar lines.
But the report, which aims to demystify their role, insists that hedge funds provide markets with liquidity and spread risks across a range of investors.
"Concerns have been expressed that hedge funds can magnify [market] "herding" and, so, contribute to asset bubbles in some markets. However, herding behaviour has not been proven to be inherent to hedge funds," the report says.
Hedge funds were demonised as "locusts" by Franz Münterfering, now Germany's deputy chancellor, after London-based TCI and New York's Atticus forced Deutsche Börse to abandon its bid for the London Stock Exchange and sack its chief executive and chairman.
But the report said the funds - 1,250 in Europe, of which two thirds are in the UK managing 20% of global fund assets - have become "more active investors in corporate equity and active shareholders of the companies in which they invest."
It also pointed out that high net worth individuals - traditionally the main investors in hedge funds - now account for just 44% of hedge fund assets, compared with 62% in 1996, while professional and institutional investors, such as pension funds, now account for 56%.
Charlie McCreevy, internal market commissioner, who is to publish a white paper on investment funds in November, said his aim was to "keep the fund industry growing" and create a single, pan-European market.
-Guardian-
Posted by su at July 6, 2006 10:41 AM