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HFSB says regulators aware hedge funds not a systemic risk

Date: Tuesday, March 31, 2009
Author: Reuters.com

The Hedge Fund Standards Board (HFSB) told Reuters it expects global regulators to propose "sensible" rules for the freewheeling industry and said investors were starting to return to the sector.

Antonio Borges, chairman of the HFSB, which sets best practice standards on disclosure and governance and which now covers nearly two-thirds of the European industry, said he expected global regulators to adopt a model similar to the UK's framework of supervising hedge fund managers.
"I think there will be movement for regulation throughout the world that is quite similar to the British model," Borges said in an interview.
Hedge fund managers in the UK, the centre of Europe's hedge fund industry, are regulated and supervised by the Financial Services Authority, though funds are mostly based offshore, in more lightly regulated locations.
"Most regulators and politicians realise hedge funds don't create any systemic risk," Borges said.
"All kinds of proposals are on the table, such as banning hedge funds ... What I've heard from authorities is that what they're working on is quite sensible." The move comes ahead of this week's meeting in London of G20 leaders, who will consider proposals for directly regulating all market participants.
Next month the European Commission will propose a draft law to directly regulate the bloc's hedge fund and private equity sectors, which is expected to include mandatory registration and an obligation to supply data to supervisors.
Last week the Alternative Investment Management Association told the Reuters Hedge Funds and Private Equity Summit there would be a "strong push" around the world for registration of hedge fund managers.
Borges also said institutional investors were returning to invest in hedge funds, though wealthy clients were still on the sidelines.
"There's certainly a dramatic reversal since November, December," he said.
"Many hedge funds are saying investors are coming back, sometimes with very large mandates ... Institutional investors are returning to the hedge fund industry in a very serious, well thought-through process." The HFSB said on Monday that 13 more hedge fund firms, including Odey, Jupiter and The Children's Investment fund (TCI), had signed up to the voluntary code.
"During the crisis in the fall, everyone had got other things on their mind ... People were saying, 'I don't know if I'm going to survive, whether the world is collapsing'," he said.
"Now funds are making money, and there isn't a feeling of emergency as there was in November and December."
Borges said signing up to the HFSB costs between 2,000 pounds and 25,000 pounds a year, depending on a firm's size.
The founding members initially paid close to 70,000 pounds a year, although this figure is falling, and all members should be paying the same fee in a couple of years, he said. (Additional reporting by Huw Jones, editing by Will Waterman) (To read the Reuters Hedge Fund Blog click on http://blogs.reuters.com/hedgehub; for the Global Investing Blog click on http://blogs.reuters.com/globalinvesting/)