Regulation – Hedge fund hawks fight back

Date: Friday, April 13, 2007
Author: Poul Nyrup Rasmussen, Chase Cooper

In March it appeared that hedge funds and private equity firms were going to escape tight regulations and that both sides of the Atlantic would go with looser, principles-based regulatory regimes for this professional market, (see Regulatory News, 5th March). However recent events have indicated that they may not be having it all their own way and there have been attacks in the European Parliament, whilst a paper released by the Brussels-based Centre for European Policy Studies (CEPS) forecasts the need for unified oversight of fund managers.

A group of Socialist MEPs, led by former Danish Prime Minister Poul Nyrup Rasmussen, has called on the Commission to take action on hedge-fund regulation, claiming that the industry's rapid growth could put the EU's job-creation policy at risk. A 300-page expert report (see link for an executive overview) published by the European Parliament Socialist group on 29 March 2007 argues for a stronger regulation of hedge funds and private equity and claims that it is "social market economy", not a "market society" that is key. "We are dealing with hedge funds raising questions of systemic risk", Rasmussen told Reuters.

The report, in conjunction with Dutch MEP and spokeswoman on economic and monetary affairs, Ieke van den Burg, puts forward concerns about unregulated equity funds, their impact on the work place, financial market stability and ethics. The report also attacks Internal Market Commissioner Charlie McCreevy, stating: "With the exception of Commissioner McCreevy, all others have reached recognition that some change is needed to ensure a better–functioning capital market." An EC spokesperson said that McCreevy was currently studying the report in detail and that he was taking the views expressed by the MEPs seriously.

This week, in a paper, "Hedge Funds: Heading for a regulatory hard landing?", published by European Capital Markets Institute researcher, Charles Gottleib, forecast pan-European regulations on hedge funds that would put the regulatory burden back on the fund managers. The ECMI (a joint venture between CEPS and a number of banking associations) recommends against new regulations just for hedge funds and specifically against regulating investment strategies, but it accepts the need for a unified European regulatory framework which introduces the oversight of the investment managers.