Call for More Oversight of Hedge Funds Is Rejected
Financial regulators yesterday rejected calls for more direct oversight of hedge funds and said that the current system for preventing market collapse and widespread investor losses is "working well" in their first policy statement on the issue in eight years.</br></br>Hedge funds are loosely regulated pools of private investment designed for wealthy individuals and institutions. Nearly 9,000 of the rapidly growing funds control more than $1 trillion in assets. On a given day, the funds may account for a third of the trading volume in major U.S. stock exchanges, according to industry estimates.</br></br>The funds' outsized returns are drawing interest from pension funds and less-well-heeled investors -- and concern from investor advocates and analysts who fear that excessive borrowing and risky trading bets by the funds could induce instability in the market.</br></br>The unanimous policy directive by the President's Working Group on Financial Markets comes weeks after pressure from allies in Europe and elsewhere to pay heightened attention to the hedge fund sector. Led by Germany, the Group of Seven nations pressed for more vigilance in policing the funds earlier this month. On Tuesday, Canadian authorities proposed forcing hedge fund managers in that country to register with regulators.</br></br>The approach in the United States has been far less direct. The Securities and Exchange Commission tried to impose a similar registration requirement in 2004, only to see it struck down by a federal appeals court as overreaching. The SEC is considering a separate proposal to raise the minimum net worth that would allow an individual to invest in a hedge fund to $2.5 million from $1 million.