EU finance ministers opt for self-regulation of hedge funds
Peer Steinbrueck
(BRUSSELS) - EU finance ministers agreed on Tuesday to allow the hedge fund industry regulate itself through a voluntary code of conduct, the German finance minister said, in a setback to a German push for tougher oversight.
"We all agree that a regulatory approach is the wrong one, so we're doing the indirect approach which everybody says is right," Peer Steinbrueck told journalists after chairing a meeting with his EU counterparts in Brussels.
"Further discussions with the hedge fund industry ought be pursued on what might be included in a code of conduct, how it might be implemented and monitored," he said.
Earlier Steinbrueck said he hoped to see such a code of conduct in place by the end of the year.
Germany has had to climb down from plans for more oversight on speculative hedge funds after finding little support among its partners in both the European Union and the Group of Seven industrialised countries.
EU Internal Market Commission Charlie McCreevy, who has long opposed regulation of hedge funds, said: "I would be very supportive of the industry adopting a volunatry code of conduct."
Steinbrueck said last month in Berlin that only 10 to 15 percent of hedge funds would need to participate in such a code of conduct for it to work as long as it included the biggest players.
Hedge funds are largely unregulated pools of capital, whose managers often use borrowed money to make hugely complex and highly risky investments in a broad range of financial securities and commodities.
The industry has enjoyed spectacular growth in recent years as otherwise conservative pension funds invest in hedge funds, which now account for a large part of the volume on many stock and other securities exchanges.
In the United States and Britain, home to the biggest hedge funds where resistance to the German campaign is strongest, such investment vehicles generally escape regulation because of their privately held ownership.
As the industry has grown, concerns have mounted -- especially in Germany -- that hedge funds could pose wider risks to the stability of the financial system if they ran into serious trouble.
Steinbrueck said a lot of players in the financial markets doing business with hedge funds wanted more transparency in order to better manage their own risks, especially in case of an economic downturn or a change in interest rates.
Even "managers of hedge funds are beginning to recognize that they have an interest" in more transparency and monitoring of the industry, he said.
Economic and Financial Affairs Council conclusions, 8 May 2007
