Europeans Battle Over Hedge Fund Oversight

May 8 2007 | 1:14pm ET

Germany continues to beat the drum against hedge funds, even as European finance ministers approved a watered-down common statement on hedge funds today rejecting regulatory intervention.

The country, which has made tackling hedge funds the centerpiece of its presidency of the G8, was forced to strike calls for a code of conduct to win British support for the joint statement. Instead, European Union finance chiefs passed the buck, saying, “Creditors and investors should also examine whether the current level of transparency of hedge funds’ activities is appropriate,” relegating “supervisory authorities” to “monitor developments and cooperate among themselves.”

But German Finance Minister Peer Steinbrück won’t be deterred by a string of recent setbacks to his government’s cause.

“We all agree that the regulatory approach is the wrong one, so we’re taking the indirect approach” he told reporters at the Brussels meeting. But he warned that hedge funds still pose big risks.

“These are not just daydreams but real issues,” he said. “Given the leverage effect of hedge funds, couldn’t there be risks for the financial markets on a global basis?”

He added that Germany is still hopeful that a voluntary code of conduct can be agreed and signed by the end of the year. On that point, he may be winning over a critic in his own backyard.

At the Brussels meeting, EU Internal Markets Commissioner Charlie McCreevy—who has consistently opposed regulating hedge funds—said a voluntary code “is probably the way to go.”

But he quickly washed his hands of the matter, stressing that such a code must come from the industry and not from Berlin.

“If the industry wants to go with having a voluntary code of conduct, then that’s a matter for them,” he said. “At this stage I don’t see a need for a community initiative in this area, that the case has not yet been proven.”


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