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23 Nov 2006

Hedge Fund Regulator Opposes Over-regulation

Hedge fund regulator and Edinburgh's top financial services commissioner Charlie McCreevy said in a statement Tuesday that Europe’s hedge fund managers may shift operations from the continent to less-regulated jurisdictions if the European Union started regulating the investments designed for wealthy clients and institutions.

This is why the 25-nation group made a decision last week to leave scrutiny of the funds at a country level. “If we went too far we could drive the industry out of Europe,” McCreevy said. Hedge funds have attracted attention from regulators and politicians concerned that their growing influence in financial markets may hurt investors.

Earlier this month, International Financial Services London said European managers oversee $401 billion of hedge fund assets under management, about $317 billion of that is managed in London. Criticism of hedge funds in Germany followed a campaign by some managers to oust Deutsche Boerse executives. “There are some people who are philosophically opposed to hedge funds and who would like to have them regulated out of existence,” McCreevy said.

US Senate Finance Committee chairman Charles Grassley requested more scrutiny of the $1.3 trillion industry after the collapse of Amaranth Advisors in September. The Financial Services Authority in the UK said earlier this year it was probing whether the funds treated customers fairly and whether they accurately valued their assets. Former German chancellor Gerhard Schroeder last year sought unified international rules for hedge funds after ordering a three-ministry probe into the funds.

The SEC is probing potential insider trading by hedge funds, while US Treasury Secretary Henry Paulson said on Tuesday his department would “continually assess their actions and impact on the market.”

Amaranth’s collapse was the biggest since Long-Term Capital Management’s 1998 demise. In Europe, rules that can help limit the effects of a fund’s collapse are already in existence, McCreevy said.

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