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Hedgeweek Comment: The baby and the bathwater

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EU Internal Market Commissioner Charlie McCreevy says he will launch a wide-ranging public consultation on oversight and risks attached to hedge funds.

EU Internal Market Commissioner Charlie McCreevy says he will launch a wide-ranging public consultation on oversight and risks attached to hedge funds. ‘I want to have a serious debate about hedge funds,’ he announced to the Economic and Monetary Affairs Committee of the European Parliament on Monday, telling MEPs it was important to assess properly the role played by hedge funds in the financial crisis.

According to McCreevy, the consultation will examine transparency, responsibility for oversight, risk management practices, systemic risks and capital requirements of hedge funds.

McCreevy, who has long expressed scepticism about the need for additional regulation of hedge funds the funds, raised the issues of how hedge funds should be defined  and how they should be regulated when most are domiciled in offshore jurisdictions (although their managers tend to be domiciled onshore in centres like London, New York and Hong Kong and in Europe at least tend to be regulated). He also asked who if anyone should regulate hedge funds: securities regulators, central banks, both?

The consultation exercise, which will be launched in the next 10 days, may well offer hedge fund managers and their defenders their last chance to convince the European authorities that there is no need for further regulation of the industry or, if some kind of oversight is inevitable, that it should avoid heavy-handed disclosure requirements that could cripple it.

With McCreevy around, the alternative investment industry can hold out some hope that any action by the EU is pragmatic and based on understanding rather than populist prejudice. The commissioner threw down a challenge to MEPs: ‘How can we ensure that too much transparency does not kill hedge funds and that we do not throw the baby out with the bathwater?’

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