- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of "Verdict on the Crash" published by the Institute of Economic Affairs. The opinions expressed are his own. -
We could see it coming, couldn't we? Those gigantic over-leveraged hedge funds were bound to come crashing down, as their massive bets turned sour, forcing them to default on their bank loans and bringing the banking system to its knees.
Except that it never happened. Instead, the system was destroyed by the greed and incompetence of the insiders, including some of the most blue-blooded investment and commercial banks in the world. Highly regulated as they were said to be, they were allowed in every country except Spain simply to move their riskiest investments off balance sheet, where they were free to bet the bank on investments in the notoriously toxic mortgage-backed securities.
Note the absence of hedge funds and private equity - Alternative Investment Funds or AIF’s - from this story.
Nonetheless, with proposals to impose new reporting requirements and controls on management, the EU is concentrating its regulatory fire on the dog that didn’t bark, with the clear intention of reducing the competitiveness of AIF’s and tying the hands of their managers (with a side swipe at the offshore financial centres where many are legally domiciled).