Hedge Fund Leaders Summoned To Appear Before US Senate

by Leroy Baker, for LawAndTax-News.com, New York

24 March 2006

Luminaries from within the US hedge fund industry are due to testify at a Senate panel next week as lawmakers and regulators grow increasingly nervous over the amount of influence that the $1 trillion industry is wielding over the world's money markets.

According to a report published by the Financial Times, among those due to appear before the Senate Banking Subcommittee on Securities and Investment are John Gaine, president of the Managed Funds Association and Jim Chanos, head of the Coalition of Private Investment Companies and founder of Kynikos Associates, $3 billion hedge fund.

The FT reports that a representative from a leading US fund of hedge funds will also be summoned to the hearing, as will be Emil Henry, the assistant Treasury secretary for Financial Institutions.

It is believed that the hearings, which are due to be held on March 28, will aim to improve communications between hedge funds and legislators.

Nonetheless, the hearings come at a time when calls for greater scrutiny of the often secretive industry have been growing in volume.

A controversial ruling by the Security and Exchange Commission which changed the definition of a 'client' in the Investment Advisors Act meant that most US hedge funds had to register with the SEC by February 1.

Regulators around the globe have also become increasingly nervous that the activities of hedge funds, some of which manage many billions in assets, could destabilise financial markets in the event of an economic shock. For example, the United Kingdom's Financial Services Authority has set up a special hedge fund unit which reportedly monitors the trading activities of the two dozen or so largest London hedge funds.

Meanwhile, Jochen Sanio, head of German financial supervisor BaFin, has revealed that he is "scared as hell" of the influence that hedge funds now exert over the financial markets, and cited them as the number one threat to global financial stability with their risky and often highly leveraged positions.

"It cannot and must not be that the largest market participants in the world taken together are not controlled at all," Sanio told an investment conference last October.

Last year, it also emerged that the International Organization of Securities Commissions (IOSCO), the global securities markets regulator, had begun drafting new rules aimed at controlling the increasingly influential hedge fund industry.

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