New York (HedgeCo.Net) – Hedge funds can expect to be kept on a tighter leash in the near future, as leaders from all over the world met at the G20 summit in London to discuss the next steps towards remedying the worst financial crisis in six decades.

Agreeing that lax regulation on all levels helped to fuel the credit crunch, the 20 leaders agreed to vamp up national regulators and to keep a watchful eye on any practices that may threaten international markets.    

To some, this includes hedge funds, who have taken much of the blame for market meltdowns thanks to domino effects that stem from imploding funds and the practice of short selling which some say can create enough speculation and fear to cause plummeting stock prices.  

The Financial Stability Forum, which has been around for over a decade, will be renamed the Financial Stability Board, and will have the task of overseeing international markets, banks, and to some extent, hedge funds. 

The FSF has already stated that hedge funds must disclose how much leverage they are using, so that investors can better gauge the risks involved.

In an effort to quell outrageous bonuses and pay, the FSF has said that an executive’s pay must directly reflect the risks they are taking, halting any million dollar pay days for a risky wager.  They also vowed to closely monitor the credit ratings agencies, whose actions contributed greatly to the economic meltdown.

The leaders also pledged to boost the war chest of the International Monetary Fund by adding $500 billion, promised to crack down on offshore tax havens and those individuals who failed to disclose information, and threw in $250 billion to help kick start trade over the next two years.  An agreement was made not to introduce any new policies that would restrict trade through 2010.

Although the FSF has not drafted any rules as of yet on hedge funds or tax havens, they did agree that “systemically important hedge funds” will be regulated.

"Today the largest countries of the world have agreed on a global plan for economic recovery and reform," said British Prime Minister Gordon Brown.

President Obama agreed, saying that “the London summit was historic.”

French President Nicolas Sarkozy, who is an advocate on stricter regulations for hedge funds added, “The G20 countries have decided on a profound reform of the international financial architecture, which has not been done to such an extent since the Bretton Woods accords in 1945.”

U.S. stocks surged following the summit and the promise of a renewed economy that came with it.  The Dow Jones Industrial Average shot past 8,000 for the first time since February 10.  It ended the day up 2.8 percent.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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New York (HedgeCo.Net) – Two senators are pushing for greater regulation of hedge funds, introducing legislation that would call on the U.S. government to oversee them.

Michigan Senator Carl Levin, a Democrat, and Iowa Senator Charles Grassley, a Republican, passed the legislation on Thursday, amidst a much broader attempt by President Barack Obama to vamp up the entire regulatory system.  It also comes at a time when the administration is still in talks over how to distribute the remaining $350 billion in the Troubled Asset Relief Program.

“We need to regulate firms that are big enough to destabilize our economy if they fail," said Levin.  "It’s time to subject financial heavyweights like hedge funds to federal regulation and oversight to protect our investors, markets and financial system."

The overhaul of the regulatory system is intended to restore faith in an economy that has been  shaken by fear.  In addition to tighter regulation of hedge funds, the broader plan will include greater oversight of mortgage lenders and credit rating agencies.

Regulation of hedge funds has long been a debate in the financial world.  While some push for greater transparency, hedge funds have taken the defensive, saying that they provide plenty of transparency to their clients, with performance reports and other data usually available via a secure website.  However, the collapse of many major hedge funds along with the handful of fraud cases has forced the government to try again.

The closest that hedge funds have come to regulation was when they were required to register as investment advisors with the U.S. Securities and Exchange Commission.  That requirement was overturned in 2006.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com

Tags: accredited-investors, barack obama, carl levin, charles grassley, credit rating agencies, fraud cases, heavyweights, hedgeco, investment-advisors, michigan senator, mortgage-lenders, performance-reports, regulatory system, secure website, securities-and-exchange-commission, senator carl levin, senator charles grassley, vamp