Finance Ministers agree to keep eye on Hedge Funds

by admin, October 30th, 2005 | No Comments

European Union finance ministers agreed yesterday to keep an eye on hedge funds, steering clear so far of setting new rules for the high-risk, high-return investments — although Germany said it will keep seeking support for a global code of conduct.

Germany, which currently leads talks between EU nations and the Group of Seven leading industrial nations, said it will raise the issue again at talks it will host in the coming weeks.

German Finance Minister Peer Steinbrück said he believed there was a good chance he could get agreement on a voluntary code by the end of the year. “We all agree that the regulatory approach is the wrong one. So we’re taking the indirect approach,” he told reporters.

EU ministers warned creditors, investors and authorities to remain vigilant and push for any necessary changes to allow them to assess the potential risks that hedge funds could pose to them and to the global financial system. They said “indirect supervision” — where regulators and investors monitor what kind of risk banks and pension funds have taken on — has so far protected the sector against major shocks.

But the ministers haven’t endorsed more rules for funds, saying it was important for supervisors to better understand how hedge funds work and how they affect markets.

The ministers said they look forward to getting more information from a report being prepared by the European Commission, the EU’s executive arm, on a range of loosely regulated investment vehicles, including hedge funds. The report is due by mid-2008.

German officials have been pushing for the establishment of a code of conduct for hedge funds, while some other countries, like the U.K. and Ireland, have argued against new rules and regulations.

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