German Chief Regulator ‘Scared As Hell’ Of Hedge Funds

by Phillip Morton, Investors Offshore.com

26 September 2005

Jochen Sanio, the head of Germany's financial regulator BaFin, told an investment conference last week that hedge funds posed the biggest threat to the stability of the world's financial system, and that he was "scared as hell" of the influence that hedge funds now exert over the financial markets, according to a Financial Times report.

Addressing the Goldman Sachs conference on the top ten risks to the global economy, Mr Sanio warned that it is just a question of time before we see a similar crisis to that brought on by the collapse of the hedge fund Long Term Capital Management in 1998, which was bailed out by the United States government and at one point threatened to bring down the banking system with it.

"It will happen. And nobody at the moment is prepared for it. That is why I am scared as hell," Mr Sanio stated.

Mr Sanio's remarks struck a chord with Robert Pozen, a mutual fund industry veteran, who, quoting Charlie Munger, partner of investment guru Warren Buffett, observed of the hedge fund industry that: "Never have so many people, made so much money with so little talent."

However, the rest of the delegates, many of whom were themselves hedge fund managers, appeared to be unmoved by the German regulator's warnings. In fact, a conference poll unsurprisingly revealed that nobody believed hedge funds pose the greatest risk to the world's markets.

Ken Griffin, founder of the major hedge fund Citadel, stated that the reaction to the collapse of LTCM had been "disproportionate", adding that factors such as oil prices posed a greater risk to world economic stability.

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