Hedge Fund Reader : AIMA to form working groups to discuss regulations for the hedge fund industry

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July 14, 2005

AIMA to form working groups to discuss regulations for the hedge fund industry

$1trillion hedge fund industry is facing a credibility crisis due to the recent developments in the market. The need for transparency and regulation code has been brought up in various forums. In view of this, Alternative Investment Management Association (AIMA) is forming working groups which would be conducting discussions on the same in the coming weeks. The hedge fund industry has been growing at a phenomenal pace off late and this has created fears of destabilization of financial markets due to high leverage and risky strategies which may lead to price swings. Hedge funds have been seen to be taking enormous risks to boost returns and often indulging in practices like insider trading and market manipulation. Add to this, the fact that only 5 to 10% of the world’s 6000 hedge fund managers are really skilled to give significant returns makes the situation grave. Meanwhile in US, greater efforts are being made in order to make the system more transparent. Registering with the Securities and Exchange Commission will be mandatory after 2006 for hedge funds and regulator will be having the power to order compliance controls, collect information and increase disclosure. Money.cnn.com reports:

“Recent concern over hedge funds peaked in May, when the downgrade of General Motors debt rating to "junk" status and subsequent market volatility raised the specter of large funds going bust as investors dumped them for safer strategies.”

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July 14, 2005 in Research | Permalink