WEST PALM BEACH, FL (HEDGECO.NET) – Hedge fund industry participants and analysts are worried that greater regulation of the global hedge fund industry may result in some unanticipated consequences.The ability of providing stability and liquidity to the financial markets may be limited.

Currently, the Financial Services Authority of the United Kingdom and the Securities and Exchange Commission of the United States are looking into hedge fund activities with the goal of bringing them under their regulatory oversight. Hedge funds have greatly increased their transparency and have also cleaned up their operations, to the point that greater regulation from government agencies is not necessary.

Additionally, hedge fund analysts explain that such focus by industry regulators on hedge fund activities have also pushed hedge fund operators to change their old ways of doing business, to the point that levels of transparency to investors have been greatly improved. Many hedge funds have also voluntarily registered their firms with the industry regulators, while the regulation question is still pending.

This issue has come up at the Central Banks Conference for International Settlements, taking place in Basle. Hedge fund industry participants are watching this event, to see what the Central Bank governors will say over the topic. Hedge funds play a vital role in the markets during times of uncertainty and market volatility by assuming risks which may eventually help to calm down and stabilize the markets.

Any new regulation which attempts to limit such role played by hedge funds may produce undesirable consequences for the markets. The global hedge fund industry favors self-regulation, according to John Godden of Hedge Fund Research, a Chicago-based provider of hedge fund data and research. Godden said, “As far as institutional investors are concerned, self-regulation works because that’s what they insist on.� He continues by saying “Institutions investing in hedge funds rely on the fund of funds managers and administrators to be the regulator, to make sure what they have is what they think they have.”

So far, the hedge fund regulation matter has been mired in controversy, as some members of the US Securities and Exchange Commission remain opposed to the idea. While it is likely that some hedge fund regulations will be imposed, the laws may be watered down compared to the original proposals.

Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: [email protected]

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