Hedge fund chiefs face grilling on role in crisis

Secretive hedge fund barons, blamed by many for undermining Britain's financial stability, will be unmasked on Tuesday when they are forced into the public spotlight by the powerful Treasury select committee.

As suggestions grow that hedge funds have made huge sums shorting UK bank stocks and sterling, the billionaire Chris Hohn and Liberal Democrat-supporting tycoon Paul Marshall will be quizzed on whether the predicted decimation of hedge funds as a result of the financial crisis could destabilise the global economic system further.

Hedge fund bosses will argue that they manage "only" £1.3 trillion of cash, which is less than a large fund manager, and that not one hedge fund has received a public bail-out. In addition, of the 150 bans or censures levelled by the Financial Services Authority since 2005, only two have involved hedge funds. They will also say that there have been numerous examples of hedge funds shorting sub-prime assets ahead of the credit crunch.

But MP Andy Love, a Labour member of the committee, said: "Since short selling has been reintroduced after the ban was lifted we have seen enormous volatility in bank shares. There has to be concern about a lack of transparency. If hedge funds collapse, will we see a new wave of volatility?"

The committee this week will also grill credit rating agencies which controversially gave the riskiest securitisations "triple A" ratings. Ratings are paid for by the company seeking to sell to investors. There are now European moves to force investors to take out their own credit rating appraisal.

The cream of the UK's audit profession will also be questioned as concern rises that they signed off accounts without sufficiently understanding the financial risks underpinning the statements. There are calls for audits to be organised by an independent body to remove conflicts of interest between accountancy firms and the companies they work for.