Brussels, 05/02/2007 (Agence Europe) - Germany has included the alternative funds industry (“hedge funds”) - estimated at 1700 billion dollars- on the agenda of the meeting of finance ministers and Central Bank governors from the seven most industrialised countries in the world (Germany, Canada, the United States, France, Italy, Japan and the United Kingdom), which will be held in Essen on 9 - 10 February. Concerned at the impact of an exploding activity on the stability of the international financial markets, Germany takes the view that the sector should be more transparent and subject to tighter controls given the systematic risks it may involve, as German Federal Finance Minister, Peer Steinbrück, pointed out at the most recent Ecofin Council (see EUROPE 9355). On the basis of the suggestion by the Bundesbank and the German finance minister, “hedge funds” could voluntarily join a code of conduct, containing provisions on corporate governance and risk management, or be subject to an independent examination by credit rating agencies. Jean-Claude Trichet, Governor of the European Central Bank (ECB), has also pleaded in favour of increased transparency for hedge funds (see EUROPE 9216). The ECB, which is in favour of an international initiative, has tabled a hypothesis of a register, which would provide motivation for the funds to communicate details on the composition of their investment portfolios.
Germany, which would have liked to see a study of more binding measures, must face opposition from countries such as the United Kingdom and the United States. In the United Kingdom, where 80% of all “hedge funds” in Europe are active, the hedge fund managers must register with the British Financial Services Authority (FSA). They notify the Authority of their financial action plan, the sum total of the capital available to cover their activities, and personal data. Nonetheless, many hedge funds active in the City of London are domiciled in third countries, particularly the islands of the Caribbean, and are therefore not subject to British law. The American approach, which is very similar, consists of ensuring that these funds target only well-informed professionals, rather than changing their behaviour. In 2006, American justice blocked an attempt by national regulators to oblige hedge fund managers to register with the Securities Exchange Commission.
Hedge funds are not subject to any specific regulation at European level. Instead, they are indirectly subject to national and European rules which apply to the financial establishments from which they borrow, or to the financial products in which they invest. Charlie McCreevy has on several occasions rejected the “myth” that these funds are subject to no regulations at all (see EUROPE 9308). The European Commissioner with responsibility for the Internal Market does not, on the other hand, want individuals to be able to invest in this financial industry. In July 2006, a group of experts recommended to the Commission that a minimum investment threshold of €50,000 be brought in in order to limit the distribution of hedge funds to a well-informed public (see EUROPE 9242). (mb)