German Code Call Going Nowhere Fast

May 22 2007 | 10:07am ET

Having abandon efforts to impose a “voluntary” code of conduct on hedge funds, Germany is being stymied in its hopes to see a “spontaneous” code arise from the hedge fund industry.

The largest industry associations—the Washington, D.C.-based Managed Funds Association and the London-based Alternative Investment Management Association—say they have no plans to introduce or push for Germany’s longed-for code. AIMA Executive Director Florence Lombard went so far as to call the idea of a general code for all hedge funds “woolly.”

“In a really heavily-regulated environment, which we are in Europe, we question the value of a voluntary code of practice on top,” she told the Financial Times.

Both organizations have tweaked their respective guidelines. The MFA’s fourth edition of its “Sound Practices for Hedge Fund Managers” is currently in preparation—the most recent update was in 2005—and should be ready towards the end of the summer. AIMA’s new guidelines were released today.

But the situation presents a catch-22 for the Germans, as hedge funds’ representatives say the country’s call for a code lacks specifics on which they can act, while the U.S. and Britain continue to oppose having a group such as the G8 draw up a code, saying they will only support one that arises “spontaneously” from the industry.

Meanwhile, closer to home, one of the leaders of Germany’s financial community is complaining that his government doesn’t understand hedge funds, especially those of the activist kind.

Distaste for activism, especially foreign activism, is a driving force behind Germany’s push to oversee hedge funds. But Deutsche Bank CEO Josef Ackermann asks why investors shouldn’t be entitled to express, and agitate for, their interests.

Shareholder activism “is still met with no understanding in Germany,” Ackermann said at an investor-relations conference. “This is very regrettable…. We should be open to the interest of foreign investors who bring capital and expertise in Germany.”


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