One-Two Punch May Knock Out Hedge Fund Threat

Date: Tuesday, April 17, 2007
Author: Hedge Fund Daily

German Chancellor Angela Merkel’s plan for promoting closer trans-Atlantic trade ties has gotten Rep. Barney Frank to thinking of a possible way to defang hedge fund’s threat to take their business elsewhere if the regulatory going gets too tough. Merkel will present her plan in Washington later this month at a meeting between the European Union and the U.S., but before that, her country this weekend will be pushing for tighter hedge fund regulations at the meeting of the G7 countries. Frank appears to appreciate the one-two punch, when he told reporters, "If you could get some kind of policy coordination on a trans-Atlantic basis and diminish that threat [to go elsewhere] in a transatlantic context, then you are talking about a pretty big chunk of the world and that is a pretty good place to start." Indeed, that would include the hedge fund centers of New York and London, which play host to virtually all the world’s hedge fund business. Much discussion will be forthcoming on the issue when the G7 countries meet, but while toeing the general U.S. line that heavy hedge fund regulation is not in order for now, Frank did say that at this point there is a "general sense that it would be good to have a document-retention requirement on those hedge funds that do not otherwise already have one, which is some, not most." Meanwhile, it appears Germany’s effort to press for more HF regulations will suffer a blow as the international task force ordered to study the industry appears not be backing Deutschland’s effort toward greater hedge fund oversight. According to Financial Times, drafts of the Financial Stability Forum’s report does not mention any of Germany’s proposals for better HF oversight, such as a global database, a code of conduct and plans for rating agencies to evaluate hedge funds. The formal report, which will be presented in May, says FT, does discuss risk-management benchmarks for banks and financial institutions that deal with hedge funds.