Hedge fund managers to face questions from US regulators: Fed discounts need for further regulation

HEDGE fund managers received conflicting signals from Washington yesterday, with the Clinton administration blaming them for recent market volatility and the Federal Reserve insisting there was no need for further regulation of the industry.

Securities regulators, meanwhile, invited hedge fund managers to discuss ways to increase disclosure of their activities.

There was 'a compelling need to learn more' about their speculation in derivatives markets, the chairman of the Securities and Exchange Commission, Arthur Levitt, told a Congressional hearing.

He said he had written to leaders of the most significant funds asking them voluntarily to supply the SEC with information about their trading positions and strategies beyond the data that all large traders will soon be required to provide to regulators.

The funds, which use complex swap and leverage instruments to offset billion-dollar investments in highly speculative products, have been blamed by some for the 10 per cent drop in world equity prices over the past month.

The Treasury Secretary, Lloyd Bentsen, endorsed this view of the stock market correction, saying that the forced liquidation of some funds was 'at least partly to blame for the markets' volatility'.

But the Federal Reserve Governor, John LaWare, whose testimony followed Mr Levitt's, suggested that the recent sell-off was an inevitable consequence of the upturn in the US economy and accompanying fears of rising interest rates.

The regulators' testimony was followed by a rare public appearance by George Soros, one of the best-known hedge fund managers. Mr Soros acknowledged the funds' contribution to volatility but urged politicians to consider the distinction between supervision and regulation.

He said was in favour of 'maximum supervision, but the least amount of regulation possible'.

Reassuring US inflation figures offered some encouragement to the bond market yesterday, but failed to give heart to US equities. The US consumer price index rose 0.3 per cent in March - in line with expectations - for an annualised rate of 4.2 per cent.

Most of the increase in March was the result of higher car, air travel and cigarette prices. Retail sales rose only 0.4 per cent during the month, shy of estimates of 1.2 per cent and below a revised rate of 1.6 per cent in February.