Bernanke defends hedge funds

Date: Friday, February 16, 2007
Author: William Hutchings, Financial News US

Ben Bernanke, chairman of the US federal reserve, has warned US congressmen against overregulation of the hedge fund industry, saying it could lead to a stifling of financial innovation. Bernanke told the Senate banking committee he was reluctant to see heavy-handed, direct regulation of hedge funds. He said their agility was good for the economy as it created market liquidity and spread risks more broadly. He said: "A regulatory regime that inhibited that flexibility and nimbleness would eliminate a lot of the economic benefits." His remarks counter calls by some European politicians for tighter control of hedge funds or their managers. Nicolas Sarkozy, French minister of the interior and a French presidential candidate, this week questioned hedge funds' morality and threatened to impose a tax on them for speculation - a threat French hedge fund managers dismissed as empty. Separately, Gradient Analytics, an equity research firm, said the Securities and Exchange Commission has reached the end of its investigation into it and decided to take no action. The SEC began its investigation after Overstock.com, an internet retailer, filed a lawsuit claiming Gradient Analytics had helped hedge funds manipulate the market in Overstock.com's shares, a claim the defendants denied.