Friday, October 10, 2008

Reputation, regulation and hedge funds' consternation

The UK-based Hedge Funds Standards Board recently announced that its increased membership now represents half of the hedge funds assets in Europe. HFSB chairman Antonio Borges said in an interview with Reuters that he fears regulators could be swayed into enacting harful legislation in the wake of the credit crisis. "The reputation of the industry will drive public opinion and therefore politicians in directions which might be harmful for all of us, not just hedge funds," he said.

Hedge funds in the U.S. can almost certainly count on new regulations. Even Republican nominees McCain and Palin are calling for more oversight of financial markets. If the industry could not effectively head off the ban on short selling (Borges calls such a ban "bad for the whole market"), how can it hope to avoid more and even more onerous restrictions, now that the crisis has deepened?

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