German Fund Industry Disputes Need For More Regulation

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

23 May 2005

Countering government threats to tighten regulation of German hedge funds, fund industry association BVI said it could see no rationale for changes.

BVI managing director Stefan Seip defended the role of hedge funds in the Deutsche Börse affair: “All I’ve seen so far is that several funds exercised their rights as shareholders, and there is nothing unusual about that. Where is more regulation needed?”

Seip pointed out that hedge funds are obliged to be transparent as regards their investments. “Whenever their ownership of a company exceeds 5, 10, 25, 50 or 75%, hedge funds have to disclose this fact. As a result, I don’t see any need for further regulation,” he said.

German Finance Minister Hans Eichel said a week ago after the Deutsche Boerse boardroom coup that 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.

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.

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