Funds Hub
Money managers under the microscope
HFSB sees risk in leverage rules
There’s no shortage of resentment in London against the EU’s planned directive on hedge funds, but the Hedge Fund Standards Board on Monday said the rules could actually create one of the problems they’re set up to avoid.
At a CSFI debate at the beautiful Innholder’s Hall in the City, HFSB executive director Thomas Deinet pointed out that, as seen all too often in the credit crisis, in falling markets a fund’s leverage automatically rises.
Imposing leverage limits could mean funds breach these levels, forcing them to sell assets to reduce borrowing and exacerbating the market problem, hence exacerbating systemic risk.
“There’s a systemic concern,” he said. “A lot of managers will be hit by leverage limits and will be forced to sell, which is when you want people to hold onto assets.”
Blowin’ in the wind
The timing of the Alternative Investment Management Association’s hedge fund disclosure initiative indicates just how strong the winds of change are blowing in hedge fund land.
Coming just a day after ECB President Jean-Claude Trichet called the credit crisis “a loud and clear call” for extending hedge fund regulation, the move shows the hedge fund industry feels it must be more active in deciding the future shape of regulation.
