Brussels, 04/05/2007 (Agence Europe) - On 8 May, the EU finance ministers will adopt very prudent conclusions on hedge funds. The idea, which is so close to the German presidency's heart of establishing a voluntary code of conduct for the hedge fund industry, was not included in the draft conclusions document that the ECOFIN Council is expected to endorse without amendment. Rather than calling for a voluntary code of conduct, the ministers are expected to simply call on the parties involved to be vigilant and to highlight the need for greater understanding of hedge funds. The conclusions will serve as the basis of discussion at a meeting of G8 finance minsters later this month in Potsdam (Germany).
The ECOFIN Council is expected to comment that 'hedge funds have contributed significantly to fostering the efficiency of the financial system' while drawing attention to the systemic and operational risks associated with them. It will call for 'indirect supervision ... through close supervisory monitoring of credit institutions' exposures to hedge funds and progress in upgrading their internal risk management systems'. Lenders and investors should 'examine whether the current level of transparency of hedge funds activities is appropriate'.
The ministers will also comment that 'concerns have been expressed regarding increased retail distribution of hedge fund products in some member states,' and are therefore expected to ask the Commission to 'assess the case for and against providing a single market framework for the retail-oriented non-harmonised fund industry, which might include some kinds of hedge funds'. The hedge funds industry manages more than a 1000 billion euros worth of assets and is characterised by shareholder activism, which can revolutionise the strategies of financial institutions quoted on the stock exchange. British hedge fund TCI, for example, sparked off the current bidding war for the biggest Dutch bank ABN Amro (see EUROPE 9416). (mb)