Hedge funds furious at Italian abolition call
Hedge funds have argued that the $1.9 trillion (€1.4 trillion) industry has been made a scapegoat for the failures in the regulated banking system, after having to defend themselves against the latest attack from a European government this week, when the Italian finance minister called for their abolition.
Hedge fund industry bodies in the UK and US said it would be a "serious mistake" for Giulio Tremonti and Italy's Government to consider abolishing the funds that are both an "essential source of capital to investors" and an important employer. Italy's own nine-year old hedge fund industry comprises around 300 funds with about €34bn.
Tremonti said this week he would push for a discussion at the G7 council of the world's largest seven countries measured by GDP about abolishing hedge funds.
His vituperative tongue-lashing is a marked volte face on Italy's previously welcoming approach to hedge funds. Two years ago the London-based Alternative Investment Management Association said of Italy's nascent hedge fund industry: "Italy boasts of one of the most complete hedge fund regulatory regimes. In only a few years since its commencement [in 1999], one can evaluate the Italian hedge fund market situation very positively."
Florence Lombard, chief executive of the AIMA, and Richard Baker, Lombard's counterpart at the Managed Futures Association in the US, said in a joint statement today: "This is a time of unprecedented instability in the markets, not a time to think about abolishing an industry that is an essential source of liquidity."
UK chancellor Alistair Darling told Financial News last month the clampdown on short selling, which saw at least 14 countries curtail or in some cases halt completely one of hedge funds' hallmark practices, was "the right thing to do in the current market conditions."
Meanwhile in the US prominent hedge fund manager John Paulson has been compelled to testify on Thursday in front of a House of Representatives' committee on whether hedge funds pose a systemic risks to financial markets, and whether a failure to regulate them was appropriate.
A manager at a multi-billion dollar fund of hedge funds said governments such as Germany's privately welcomed hedge fund involvement in their markets, but saw it as politically unwise to say this publicly. Fritz Munterfering, former chairman of Germany's Social Democrat Party branded hedge funds "locusts" in 2005.
AIMA and the MFA said: "The positive returns that hedge fund managers generate for investors are more critical than ever, and any losses that occur are never linked to taxpayer dollars."
Ian Morley, chairman of fund of hedge funds Corazon Capital Management and a former chairman of AIMA, said politically-inspired attacks on hedge funds were "shooting the messenger" rather than attacking the root cause of financial markets' current plight.
-- Write to David Walker at dwalker@efinancialnews.com
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