New York Times – In October, a month after the Amaranth hedge fund lost $6.6 billion  the most ever by a hedge fund  Henry Paulson Jr., the Treasury secretary, spoke with Bloomberg News about the importance of “transparency†at hedge funds and “liquidity†in the system. His remarks were interpreted at the time as a warning, perhaps even a harbinger of more oversight.
What a difference a month makes.
In what was billed as a major economic address last week, Mr. Paulson devoted less than one-tenth of his speech to hedge funds, leaving the impression that he is basically satisfied with the regulatory status quo.
No one wants the Treasury secretary to be an alarmist. But other officials, notably at the Federal Reserve Bank of New York and the Securities and Exchange Commission, have gone further than merely acknowledging “potential risks†and pledging more “deliberations,†as Mr. Paulson did in his speech. Without pushing any panic buttons, they have broached the need for more collateral and better risk controls at banks that deal with hedge funds and greater oversight of hedge funds that solicit investments from pension plans.
Currently, some 9,000 hedge funds manage $1.3 trillion of investors’ money and control trillions of dollars more through their use of loans and derivative financial tools. They invest in all major sectors and operate through banks and securities firms, affecting the economy as a whole. And yet, they remain largely beyond the reach of federal overseers, a holdover from the days when they were much less ubiquitous. In 1990, only a handful of hedge funds existed, and altogether they managed just $39 billion.
