Regulation

The European Fund and Asset Management Association has called for harmonization of rules governing hedge funds and funds-of-hedge funds across the European Union, and the European Central Bank has repeatedly said any rules to harmonize policy need be made with the cooperation of U.S. regulators.

The EFAMA, which represents asset managers who control an estimated €2 trillion (US$14.1 trillion), warned in a report published this week that the lack of consistent hedge fund regulation in Europe is stifling the region's economic growth.

Investors in now-defunct hedge fund Bayou Group may have been burned by the scandal, but the recent spate of high-profile hedge fund dustups has been a boon for private investigation firms specializing in finance.

"Bayou put it back on everyone's mind," said Kevin Jones, president of HedgeCheck.com, a firm that searches public records to provide background checks on hedge funds. "I have a lot of stable clients, but now I am getting more inquiries."

Jeffrey Brenner, a principal at Intelysis Corp., an international financial investigation firm, says another reason for the increase in demand for hedge fund investigations could be fear of culpability.

With less than three months to go before laws requiring hedge funds with more than $25 million in assets under management to register with the Securities and Exchange Commission come into affect, the buzz about their possible impact seems to be just that, buzz. Industry insiders at the Fourth Annual Fund-of-Funds forum in New York this week spoke about the new regulations, and the general consensus was that the laws will neither prevent fraud nor will they harm the hedge fund industry.

"We don't look to the SEC to do our due diligence," chuckled Patrick Egan, president and chief executive of Pennsylvania-based fund-of-funds firm Attalus Capital, speaking on a panel at the conference.