Money managers under the microscope
Turn! Turn! Turn!
For all the political noise about hedge fund regulation, today’s Turner review looks like a relatively easy set of rules for the industry to stomach.
In his 126-page document, mostly about the banking sector, FSA chairman Adair Turner says the watchdog will demand more information from hedge funds and says regulators should be able make rules in areas such as capital and liquidity if hedge funds start to pose systemic risks or become “bank-like” in their activities.
And while Turner points out hedge funds can pose systemic risks, he notes the FSA’s already-extensive regulation of hedge fund managers.
Significantly, he clearly draws a distinction between the activities of hedge funds and banks, pointing out that hedge funds have tended to be much less leveraged.
Hedge fund industry executives believe they can live with disclosing more information to regulators, which mirrors proposals put forward last month by AIMA, a hedge fund industry body. AIMA, the PWG and the MFA have also written to the Financial Stability Forum, committing to work together towards global standards.
Some leveraged credit strategies could see returns hit under the proposals, which could make them sit on extra cash, but this is relatively small proportion of the industry.
Next month will be key for hedge funds, as G20 leaders meet in London on April 2 and the European Union proposes binding rules on April 21. If the industry can escape with new disclosure obligations or with caps on prime broker borrowing — a suggestion made by many in the industry — then AIMA will be able to claim a major success in seizing the initiative in the hedge fund debate.