Eichel Joins Schroeder In Threatening European Hedge Funds

by Ulrika Lomas, for LawAndTax-News.com, Brussels

18 May 2005

As the backlash to the Deutsche Boerse boardroom coup continues, German Finance Minister Hans Eichel said on Friday he agreed with Chancellor Gerhard Schroeder that hedge funds should be subject to additional scrutiny.

Eichel said he wanted German standards of regulation to apply across Europe: "I want a Europe-wide supervisory body for hedge funds based on the German model. What we have managed to achieve in the German market to improve regulation and transparency I would like to see exported." He added: "In this way we could minimise the risk from certain black sheep among hedge funds, who are only out to maximise their profits in the short-term."

The coup at Deutsche Boerse, which saw investors in Deutsche Boerse remove Chief Executive Werner Seifert and Chairman Rolf Breuer, led German Chancellor Gerhard Schroeder to consider legislation to limit the power of hedge funds. Schroeder told an SPD policy forum last week that tighter controls and greater transparency may be needed, and asked the finance and economy ministries to look into the issue. Social Democrats are said to be considering limiting short-term investors' voting rights.

Shortly before the boardroom putsch, Franz Muentefering, leader of Schroeder's ruling SPD, compared intrusive investors to a plague of locusts, meaning of course the 'anglo-saxon' hedge funds which have begun to flex their muscles as shareholders in the orderly world of German corporate governance.

Although Muentefering's comments were widely seen as being designed to send a political message to voters in an upcoming state election, the Deutsche Boerse affair has stirred up wider concerns about foreign intervention in German capital markets.

Commerzbank Chief Executive Klaus-Peter Mueller weighed into the affair on Sunday, saying that hedge funds should face the same regulation on capital requirements and management as banks, and called for international action: "It's hard to understand that small credit institutions face strict oversight, while hedge funds that have a much more significant financial impact are not regulated beyond having to register an address."

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