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Post an EU jobMember states have spoken out in favour of a voluntary code of conduct and a self-regulatory approach towards the hedge-fund industry, but shied away from imposing any further regulation at a meeting on 8 May.
The issue of whether to regulate hedge funds has become a matter of debate during the last months of the German G8 and EU Presidency. EU finance ministers have already called for a voluntary commitment to improve the hedge-fund industry's transparency, while the German EU Presidency has called for a code of conduct (EurActiv 23/04/07).
However, the Commission has so far said that the case for additional regulation at EU level was not proven.
According to Investopedia
, the investment dictionary, hedge funds are aggressively managed investments portfolios using advanced techniques unavailable to other types of funds, which aim to generate the highest returns for investors. In the US, they are for the most part unregulated because they require investors to have a net worth of over $1 million. "You can think of hedge funds as investment funds for the super-rich," says Investopedia.
EU finance ministers spoke out in favour of an "indirect supervision" approach to hedge funds and supported a form of a voluntary code of conduct at a meeting on 8 May.
German Finance Minister Peer Steinbrück said after the meeting: "Concerning a voluntary, self-implemented code of conduct for hedge funds, I do not think any one suggests that this is not a desirable objective, although one might have to argue about certain individual points."
This light stance on regulation foresees a "close supervisory monitoring of credit institutions' exposure to hedge funds and progress in upgrading their internal risk management systems", Steinbrück said.
Member states underlined the importance of the "significant" contributions that hedge funds make to the efficiency of the financial system, but at the same time recognise the "potential systemic and operational risks" that they represent and called on creditors and investors to remain vigilant.
At the same time, finance ministers adopted conclusions on the Commission's White Paper on Investment Funds and agreed to make amendments to the EU single market framework for investment funds – the UCITS Directive.
Internal Market Commissioner Charlie McCreevy underlined: "I would be very supportive of the [hedge fund] industry adopting a voluntary code of conduct." He added: "At this stage, I do not see the need for a Community initiative in this area. The case for this has not yet been proven."
German Finance Minister Peer Steinbrück said: "We all agree that a regulatory approach is the wrong one, so we are taking on the indirect approach, which everyone says is the right one."
"The amount of money being administered by hedge funds is increasing exponentially. It is not just experts, but also issuing bank governors are wondering about what might happen if there was a downturn, what happens if there is a change of interest rate, what about leverage effects? These are not just daydreams, they are real issues. The real experts on financial markets ask these questions and hedge-fund managers are beginning to raise them too."
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