Treasury Official Predicts Hedge Funds to Become Safer

Date: Wednesday, April 19, 2006
Author: HFN Daily Report

Speaking Tuesday at the Federal Reserve Bank of Atlanta, Emil Henry, the Treasury Assistant Secretary for Financial Institutions, said hedge funds are likely to get safer in the future as more pension plans invest in them.

Before joining the administration, Henry co-founded an asset management business which invested in many alternatives. He said other alternatives, such as venture capital, real estate and private equity, began catering to high net worth individuals. Later, endowments and corporate pension plans began to invest, and eventually public pension funds. The same pattern, he said, is emerging with hedge funds.

The institutionalization of hedge funds, Henry said, is gradually reducing risk for those investments.

"Broadly speaking, there is less systemic risk in the hedge fund space than is generally perceived," Henry said in prepared remarks. He suggested risk is really isolated in a few specific areas, such as credit derivatives.

Henry said as pensions continue to invest in hedge funds, the industry will adjust and impose institutional risk management regimes.