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Revealed: hedge fund and PE leverage, amongst other strictures


Date: Tuesday, April 7, 2009
Author: Paul Murphy, Financial Times

Managers of hedge funds and private equity will need to be registered, hold a minimum level of capital and provide regulators with information on both the size and source of their borrowings, according to a draft EU proposal obtained by Reuters.

The information, which could be fed to the new-fangled European Systemic Rick Council, will also include national regulators being told each fund’s exposure to illiquid assets, together with details of the valuation methodology employed and the custodian arrangements.

Firms with less than €250m under management will be exempt from the proposals, however.

Some extracts from the document, which is due to be published by EU Internal Market Commissioner Charlie McCreevy on April 21:

(This is) … in view of the need for private equity and buy-out funds to account publicly for the manner in which they manage companies of wider public interest…

Hedge funds… may have contributed to asset price inflation and to the rapid growth of structured credit markets. The subsequent rapid unwinding of leveraged positions appears to have contributed to market volatility…

It has become apparent that nationally fragmented approaches do not constitute a robust and comprehensive response to risks in this sector.