Ben Bernanke, chairman of the US federal reserve, has warned against over regulation of the hedge fund industry. Bernanke said that U.S. authorities must take care not to stifle financial innovation by over-regulating the derivatives and hedge fund industries.
"I would be very reluctant to get involved in heavy-handed, direct regulation of hedge funds," Bernanke told the Senate Banking Committee in response to a question during semi-annual testimony on monetary policy.
"One of their key characteristics is that they are very nimble," Bernanke said. "That is good for the economy, because they help create liquidity in markets, they help to spread risks around more broadly, and a regulatory regime that inhibited that flexibility and nimbleness would eliminate a lot of the economic benefits."
U.S Treasury Secretary Henry Paulson called for market discipline, rather than government regulation, to address risks of the rising global hedge fund business at the G7 meeting. "Market discipline, focusing on risk management of regulated counter parties, is the most effective way to address potential systemic risk concerns."
Paulson and Bernanke work together as heads of the President's Working Group on Financial Markets, working with the Securities and Exchange Commission and the Commodities Futures Trading Commission to study the hedge fund industry. "The group continues to assess developments in markets, disclosure and counterpart risk management," Paulson said.
Paulson also said he's convinced "hedge funds provide considerable benefits to financial markets and our economies," but they also can present potential challenges and risks.
"It is in the U.S. interest to promote a thriving, competitive global hedge fund industry that facilitates price discovery and promotes liquidity in financial markets, while maintaining investor protection and promoting financial stability," Paulson said.
16 Feb 2007
Hedge Fund Survey Shows Established Names Have More Chance of Success
The Absolute Return New Funds Survey for 2006, published in the February issue of Absolute Return magazine, shows that new hedge fund launches in the U.S. slowed for the second year in a row. Last year, the 86 largest hedge fund launches raised $31 billion, down from $34 billion raised by 82 funds during 2005 and $40 billion by 81 funds in 2004.
Most of the launches were in the first six months of the year. But after the equity market meltdown last spring and summer hammered hedge funds, and Amaranth Advisors went bust last fall, raising money got harder for new funds.
Only 29 funds raising at least $50 million - the minimum required to be included in the survey - launched during the second half of the year. These funds raised a mere $6.2 billion, or 20% of the total.
For the year, six new funds raised more than $1 billion. The biggest launch of the year, Convexity Capital, set a new record in terms of assets for its $6.3 billion fund launch last February. Convexity was founded by Jack Meyer, the former Harvard University endowment money manager superstar.
The second largest launch in 2006 was Old Lane Management’s Old Lane fund launched in April with $3.7 billion. It finished the year with roughly the same amount. The giant multistrategy fund’s founders include Vikram Pandit, John Havens and Guru Ramakrishnan - a high-profile trio from Morgan Stanley.
A closer look at the alpha-pack points to two ongoing themes: Billion-dollar megalaunches are alive and well - but only for the right pedigree. Seven of the top ten launches were new funds by established players, more evidence that the big, established names will continue to get bigger.
The trend for larger megalaunches in the past few years is likely to continue if institutional investors - pensions and endowments more so than funds of funds - continue to wade into hedge funds.
Most of the launches were in the first six months of the year. But after the equity market meltdown last spring and summer hammered hedge funds, and Amaranth Advisors went bust last fall, raising money got harder for new funds.
Only 29 funds raising at least $50 million - the minimum required to be included in the survey - launched during the second half of the year. These funds raised a mere $6.2 billion, or 20% of the total.
For the year, six new funds raised more than $1 billion. The biggest launch of the year, Convexity Capital, set a new record in terms of assets for its $6.3 billion fund launch last February. Convexity was founded by Jack Meyer, the former Harvard University endowment money manager superstar.
The second largest launch in 2006 was Old Lane Management’s Old Lane fund launched in April with $3.7 billion. It finished the year with roughly the same amount. The giant multistrategy fund’s founders include Vikram Pandit, John Havens and Guru Ramakrishnan - a high-profile trio from Morgan Stanley.
A closer look at the alpha-pack points to two ongoing themes: Billion-dollar megalaunches are alive and well - but only for the right pedigree. Seven of the top ten launches were new funds by established players, more evidence that the big, established names will continue to get bigger.
The trend for larger megalaunches in the past few years is likely to continue if institutional investors - pensions and endowments more so than funds of funds - continue to wade into hedge funds.
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