Hedge funds seek to head off regulation

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Three major European and US hedge fund groups yesterday pledged to work towards worldwide best practice standards after G20 ministers outlined plans to regulate the freewheeling sector.

The London-based Alternative Investment Management Association and US counterparts the President's Working Group and the Managed Funds Association have written to the Financial Stability Forum to draw together different industry standards, of which the first draft is expected by the end of next month, said Andrew Baker, head of AIMA.

The organisations are discussing a global standard on issues such as disclosure, risk management, dealing with conflicts of interest within an organisation and statements about operational and business controls.

The next step for the groups will be to agree on common principles, added Mr Baker."We have been saying the same thing so we may as well commit to a same standard," said Mr Baker. The organisations are discussing reaching uniformity of standards of behaviour and so-called "best practice" rather than out-and-out regulations, he added.

The developments come after growing and high-profile political pressure in recent months for tougher regulation of the industry. Hedge funds have been trying to fight such additional regulation which governments are likely to place on them - as well as other financial institutions - in the wake of the credit crunch and global financial meltdown.

The letter was written as the FSF makes recommendations to G20 finance ministers, who at the weekend pushed for hedge funds or their managers to be registered and disclose information needed to assess any systemic risks they pose.

Short-selling by hedge funds has been blamed by some politicians for contributing to the financial meltdown by causing catastrophic falls in the share prices of banks desperate for cash, undermining their ability to successfully undertake rights issues.

Hedge funds, which have been expecting regulation for some time, cautiously welcomed the plans.