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AIMA Disagrees With Bundesbank Over Hedge Funds

by Carla Johnson, Investors Offshore, London

05 December 2006

AIMA, the global trade association for hedge funds, has responded to Deutsche Bundesbank Financial Stability Review 2006, published yesterday, expressing disappointment over claims that hedge fund activities pose a risk to the financial sector.

AIMA says that The Review failed to reflect on the increased levels of corporate governance from which hedge funds now benefit. Hedge fund managers – and in some instances, funds - are regulated throughout Europe and their standard of governance is high, a point endorsed last week by Charles McCreevy, the European Commissioner for Internal Markets and Services.

Indeed he commented that, in addition to direct regulation, hedge fund managers are also subject to the market disciplines enforced by hedge fund counterparties such as prime brokers, which are EC regulated banks, including some regulated by the Bundesbank itself. In addition, the growth of institutional investment into hedge funds has brought even higher levels of due diligence as investing institutions, such as pension funds, assess how hedge fund management companies are run as well and their fund’s investment performance.

The Bundesbank in its Review has recognised that, following a large US hedge fund experiencing major losses in September, the financial system absorbed its impact.

It is important to note that the European hedge fund industry has not experienced such an event, says AIMA. Contrary to the Bundesbank’ s conclusion this shows that the risk management systems of hedge fund counterparties – including prime brokers – have improved dramatically in recent years. Therefore the Bundesbank may be exaggerating the risks imposed by hedge funds on the stability of financial markets.

Most economists nowadays think that, far from causing instability in financial markets, hedge funds operations tend to lessen it.

AIMA, the Alternative Investment Management Association, has over 1,100 corporate members worldwide, based in 47 countries. Members include leading hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting services and fund administrators.

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