Facing the potential of increased scrutiny and regulation south of the border—especially following U.S. Democrats’ success in this week’s elections—hedge funds have found a little love in the great frozen north.
The Bank of Canada’s deputy governor had only nice things to say about hedge funds at a conference near Toronto on Wednesday.
“Hedge funds have had a largely positive impact on the efficiency of financial markets in Canada,” David Longworth said. “There appears to be no reason to sound the alarm.”
Compare that with the angry rumblings coming from Washington over the past few months. Treasury Secretary Hank Paulson called for “vigilance” regarding hedge funds last month, and in the wake of the Amaranth Advisors debacle—precipitated, one may recall, by the disastrous natural gas trades of Amaranth’s man in Calgary, Alberta, Brian Hunter—hedge funds faced ominous words and threats from both sides of the aisle on Capitol Hill, as well as from generally more mild-mannered regulators, such as New York Federal Reserve President Timothy Geithner. Notably, Sen. Arlen Specter (R-Pa.) made it clear that when it came to Amaranth, he was “interested in indictments, even more interested in convictions, and more interested in jail sentences.”
By contrast, in spite of a slew of bad hedge fund news in Canada over the last two years, including the highly-publicized collapse of Portus Alternative Asset Management and Norshield Asset Management, Longworth praised hedge funds’ risk management.
“It’s useful to note that the largely positive influence of hedge funds stems from their sophistication, their size, the diversity of their objectives and strategies, and the instruments they use,” he said.