G7 need to understand hedge funds better, says Aima

Date: Wednesday, February 14, 2007
Author: Hedgeweek.com

The Alternative Investment Management Association, the global hedge fund and alternative investment industry association, says that leaders of the Group of Seven countries, who last weekend expressed concern about systemic and operational risks related to hedge funds, should develop a better understanding of what the funds do.

Responding to a statement issued on Saturday by G7 finance ministers and central bank governors of the Group of Seven nations after a meeting in Essen, Germany, Aima welcomed the acknowledgement that hedge funds have contributed to the efficiency of the financial system, but added: 'Aima also recognises that G7 members need to have better understanding on hedge fund trading activity.'

In their statement, the G7 officials said: 'We discussed recent developments in global financial markets, including hedge funds, which along with the emergence of advanced financial techniques including credit derivatives, have contributed significantly to the efficiency of the financial system. Nevertheless the assessment of potential systemic and operational risks associated with these activities has become more complex and challenging.

'Given the strong growth of the hedge fund industry and the instruments they trade, we need to be vigilant. We therefore agreed to further pursue the issue. We will exchange views with the private sector and ask the Financial Stability Forum to update its 2000 report on highly leveraged institutions.'

In its reply, Aima highlighted that European and Asian hedge funds managers and their counterparties 'operate under full authorisation and supervision of the leading international regulatory authorities such as the UK Financial Services Authority, the Autorité des Marchés Financiers in France, and the Securities and Futures Commission in Hong Kong, among others.

'Aima has pointed out that hedge fund managers are already sharing information and data with these regulators - who have not expressed specific concerns nor backed up calls for further disclosure. Additionally European managers already have to comply with a multitude of Europe-wide regulations such as MiFID and CAD2' [the EU's Market in Financial Instruments Directive and the second Capital Adequacy Directive].

Responding to a suggestion from G7 leaders to the possible development of a voluntary code of conduct, Aima said: 'Such an idea has neither relevance nor meaning in this context of existing regulations.'

However, the organisation says it would welcome the opportunity to contribute to an update of the Financial Stability Forum's 2000 report on highly leveraged institutions, noting that the original report, whilst relating to the collapse of Long Term Capital Management in 1998, also focused on other market participants aside from the hedge fund industry.

Aima has more than 1,100 corporate members in 47 countries worldwide including hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting services, fund administrators and information providers.