International Herald Tribune – Hedge funds pose a diminishing threat to the financial system because their managers have improved oversight to satisfy pension plans and other institutional investors, Emil Henry, the U.S. Treasury’s assistant secretary for financial institutions, said Tuesday.
“There is less systemic risk in the hedge fund space than is generally perceived,” Henry said, according to the text of a speech to be delivered at the Federal Reserve Bank of Atlanta.
Hedge funds are lightly regulated groups of wealthy investors who employ riskier techniques, like borrowing money or selling short, to try to make outsized gains. According to Hedge Fund Research, 8,661 hedge funds managed $1.1 trillion at the end of 2005.
It is an “oversimplification” to treat the $1 trillion invested in hedge funds as a single pool of capital, Henry said. Managers leverage that money in many ways, and each of those strategies should come with its own risk profile, he said.
At the same time, hedge fund managers are being forced to be more transparent to lure pension funds as investors, Henry said.
