DAVOS, Switzerland (Reuters) – The possibility of a major market crisis caused by financial derivatives is replacing the danger of low interest rates driving asset markets to unstable levels as thetop issue on policymakers’ worry list.<\/p>\n
In a keynote speech at the World Economic Forum on Wednesday, German Chancellor Angel Merkel said proposals to shed more light on hedge funds operations would be a priority for her leadership of the Group of Eight industrial nations this year.<\/p>\n
“We want to minimize the systemic risks in international capital markets and to raise their transparency — above all, I see the need to catch up with hedge funds,” she told leading business and political leaders.<\/p>\n
Hedge funds, which control about $1.3 trillion (660 billion pounds) in assets and often take high-risk leveraged positions in financial derivatives, have doubled in size over the past five years. As private investment vehicles for wealthy individuals, they currently are regulated lightly.<\/p>\n
Concerns that hedge funds have taken advantage of low worldwide interest rates to borrow cheaply and invest in high-risk financial instruments escalated after huge losses last September by U.S.-based fund Amaranth Advisors.<\/p>\n