April 1, 2007 – To regulate or not to regulate hedge funds? That is the question now being hotly debated following a government group’s recent report asserting that the hedge fund industry needs no further government regulation and that these funds and other private investment pools can do just fine by policing themselves.
On one side are critics of the proposal, such as Massachusetts Secretary of State William F. Galvin, who say the decision not to regulate hedge funds further is irresponsible and avoids the issue of the hedge fund industry’s enormous influence on capital markets.
“The hedge fund segment of the financial services industry is growing, and its influence is tremendous–both because of the volume of trades and because of the fact that so many pensions have added hedge funds to their portfolios,” he says. “The fact that the government is trying to pretend it’s not there is ridiculous.” With the opposing view are supporters of the hedge fund industry, who agree with the strongly antiregulatory report. They say the entire financial services arena is more sophisticated now, and hedge funds will be able to police themselves with robust risk management.
