Should Hedge Funds Face Harsher Regulation?

Joseph Chadwick

Jonathan Jackson

James Petkovski

Throughout this entire economic downturn managers of hedge funds have received heavy criticism regarding the welfare of their clients over their own. The E.U. is already requiring that hedge funds meet higher standards of regulation that are much tougher than previous rules. AIMA, a London investing group, calls the new rules bureaucratic and argues that these policies will only cost society more. Kinetic Partners, an investing consulting group, claims that more than five billion dollars would be lost. This is also harmful to managers around the world because foreign managers would not be able to advertise their funds to E.U. investors if they do not meet these strict regulations. More criticism is argued by politicians as well claiming that hedge and private funds were not the reason for the financial collapse. Regulating private and hedge funds in this market would only be harmful to the global recovery. Blaming the hedge funds is inefficient and is only happening due to political pressures says Mats Odell Sweden’s Financial Markets Minister.

Along with domestic investment managers, the E.U. is afraid of foreign hedge funds as well. There is almost no equivalence between hedge fund regulations in Europe and the United States. Andrew Baker, the CEO of AIMA says that this could lead to a lock out of all American investment managers, or at least those that do not adhere to the new more stringent standards. The fact that British citizens would be limited to only domestic investments would be very harmful to total social welfare and therefore has sparked immense scrutiny from the European parliament and the European Council. Sweden’s Odell believes that the bill can be passed if it is highly amended and polished to be more realistic. Myner’s, Britain’s minister has vowed to get the bill amended and passed while lobbying groups have begun campaigning against any form of the bill passing. The plausibility of the bill passing has diminished but there is still hope; no force from the bill would actually take place until at least 2011.

http://www.time.com/time/business/article/0,8599,1909026,00.html