05 February 2009

EBF response on Commission hedge fund consultation

Hedge funds are more likely to play a stabilising role than other market participants, EBF notes, underlining that there is no homogeneous definition of hedge funds. Also, the short-selling issue should be disconnected from the discussion on hedge funds.

The EBF supports market led initiatives and reiterates that the implementation of the Hedge Funds Code will at least lead to important improvements in particular with regard to the transparency towards investors and investor protection.

 

Also, EBF underlines that, in principle, hedge funds are also more likely to play a stabilising role than other market participants. Furthermore, the issue of short-selling should be disconnected from the discussion on hedge funds.

 

The EBF underlines the large differences in legal aspects as well as and in leverage levels, size, and trading strategies of the firms that are all labelled “hedge funds”. These differences are not sufficiently clear from the European Commission’s consultation, EBF notes. The absence of a commonly accepted definition of hedge attribute to the fact that there is no homogeneous group that could be defined in a clear-cut way, EBF notes.

 

The potential systemic risk that can arise from the failure of a large hedge fund has so far been addressed through the regulation of the prime broker, which provides financing and liquidity to the funds.

 

EBF also notes that hedge funds are different from other funds such as UCITS and are not designed for mass-distribution to retail investors. EBF, therefore, does not support that hedge funds should be subject to product-specific regulation.

 

As regards the protection of retail investors, direct investments have so far been rare and are indeed not allowed in most EU jurisdictions, EBF notes. However, funds of hedge funds and hedge funds indices can be a good tool for retail investors to gain exposure to alternative investment categories, EBF notes, and refers to suitable retail investor protection standards such as those suggested by the IOSCO in its soon to be finalised funds of hedge funds guidelines.

 

Full response attached below

 

© EBF