IMF Calls For More Regulation Of Hedge Fund Industry

by Carla Johnson, Investors Offshore.com

05 October 2004

The International Monetary Fund warned last weekend that the trading activities of the global hedge fund industry threaten to destabilise the world's financial markets and should be monitored more closely.

In the communique issued following the organisation’s biannual meeting this weekend, the IMF's policy committee, chaired by UK finance minister Gordon Brown, called for the hedge fund industry to become more accountable to the word’s financial regulators.

"Improving transparency in markets, including the role of hedge funds, would help strengthen market surveillance," said the communiqué.

Government representatives at the Washington conference fear that a lack of opportunities in the world's equity markets has forced hedge funds to switch to instruments such as commodity futures, and have pushed up the price of crude oil.

A report published by the IMF ahead of the meeting warned that hedge funds pose serious risks to the global financial system, pointing to the crisis that followed the collapse of Long Term Capital Management in 1998.

"We still do not know what we do not know about hedge funds, and efforts to improve our surveillance and understanding of their market activities should be supported," said the IMF.

Other analysts say that the activity of hedge funds has, if anything, a stabilizing effect on financial markets.

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