AIMA and MFA issued a joint statement today dismissing Italian Finance Minister Giulio comment last Saturday that reform of market regulation should include discussion on the abolition of hedge funds, arguing that hedge funds “play a vital role in the global economy.”
And, in response to suggestions from HM Treasury on Monday that the current financial turmoil is the direct result of institutions becoming involved in “exotics” which led to a “period of irresponsibility,” Financial Express analyst Rob Gleeson said:
“The most likely long term repercussions for hedge funds will be increased regulatory scrutiny and oversight. The largely unregulated credit and derivatives markets will most likely get an overhaul, which will no doubt reduce arbitrage and trading opportunities for hedge funds.”
He continued: “Also, having being portrayed as the devil incarnate for much of the current crisis, it is unlikely hedge funds will be able to continue doing as they please with little or no accountability to a governing body. How such regulation would be implemented in the global world of finance is unknown, but still some of the more creative (speculative) funds are likely to have their wings clipped.”
When asked what the impact of recapitalising banks throughout Europe and the US would be for hedge funds and alternative assets in particular, Gleeson said:
“The impact of recapitalisation will not fully be understood until the government has made clear exactly what conditions and restrictions they intend to impose on banks who tap them up for capital. With the majority of rich world countries launching similar rescue packages, nearly every major market is likely to change significantly in the future.
“This will certainly hurt hedge funds who have taken a punt on distressed financials, as it is likely that the banks will be far more restricted and will be less creative in the way they generate wealth.
“If governments become major shareholders it is unlikely any sort of activist strategy will succeed as the state is likely to want its investment guarded with extra caution. It is also unknown weather banks will have pressure put on them to achieve economic and political goals, rather than provide returns to shareholders.”
While, according to Mick Gilligan, the director of fund research at financial services firm Killik & Co, the recapitalisation plans will have a positive effect for alternative funds because it will guarantee bank credit.
Meanwhile President Nicolas Sarkozy called at a European Union summit on Wednesday for a clamp-down on hedge funds and offshore centres.
"I would propose a simple principle, that no financial institution should escape regulation and supervision," he said according to a copy of a speech to the EU summit in Brussels.
"I am thinking, for example, of the regulation that we must apply to the rating agencies, and of the necessary supervision of hedge funds...We must also work to eliminate the grey areas that undermine our efforts at coordination, in this case the offshore centres," he said.
Analyst responds to hedge fund regs threat
15 October 2008
Earlier today AIMA and MFA – the UK and US hedge fund industry groups – responded to the threat from the Italian Finance Minister to ban hedge funds. Now Finance Express analyst Rob Gleeson has also commented on the risk of increasing regulations being imposed on hedge funds.
By Barney Hatt,
Reporter
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