Tremonti's Call For Hedge Fund Ban Provokes Industry's Ire

by Ulrika Lomas, Tax-News.com, Brussels

16 October 2008

Two groups representing some of the world's largest hedge funds have joined forces to condemn Italian Finance Minister Giulio Tremonti's suggestion that hedge funds should be banned in order to restore stability to the world's financial markets.

During the G7 summit last weekend, Tremonti told the Italian media that hedge funds were "absolutely crazy bodies" which have nothing to do with the ordinary workings of a capitalist economy, and he called on the world's leading governments to have a "discussion" on whether there is a place for hedge funds in the current financial system.

However, the Italian's comments have provoked the two largest global hedge fund associations - the Washington-based Managed Funds Association and the London-based Alternative Investment Managers Association - into a vigorous defence of their industry.

"Hedge funds are private pools of capital that play a vital role in the global economy," Richard H. Baker, MFA President and CEO, and Florence Lombard, AIMA CEO, said in a recent joint statement.

They went on to argue that: "This is a time of unprecedented instability in the markets; not a time to think about abolishing an industry that is an essential source of liquidity. In the midst of this global financial crisis, the hedge fund industry is fully engaged with regulators and policy makers to provide solutions that will benefit the markets and help to stabilize the global economy.

"Hedge funds are entrepreneurial organizations that provide investment capital to help create new businesses and to help rebuild ailing businesses. They also provide critical risk management tools to institutional investors such as pensions and endowments and help them to meet their future funding obligations to retirees and college students. The positive returns that hedge fund managers generate for investors are more critical than ever, and any losses that occur are never linked to taxpayer dollars."

Baker and Lombard's statement concluded that: "It is too easy to point a finger at an industry that is misunderstood; hedge funds are not an appropriate scapegoat during a crisis that was caused by failures in the regulated banking system. In response to comments by Finance Minister Tremonti, the hedge fund industry in Italy is a model of successful regulation, provides excellent risk-adjusted returns for investors and is an important source for job creation. It would be a serious mistake to consider eliminating these innovative private pools of capital that are, in fact, an essential source of capital to investors, to Italy and to the global economy."

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