Two advisory groups assembled by the Bush administration proposed new “best practices” for the hedge fund industry, but Connecticut Attorney General Richard Blumenthal said the effort falls short of the mandatory government regulations he says are needed.
Blumenthal said the voluntary guidelines, one set prepared by hedge fund managers, the other by investors who use the funds, were a “virtual farce” that would do little to halt abuses in an industry that has seen explosive growth. An estimated 8,000 funds now hold assets of nearly $2 trillion.
“Hedge funds have become too big and too important to remain outside the rules,” Blumenthal said in a statement. “Instead of voluntary guidelines, the federal government should set specific, common sense rules and provide for federal and state enforcement.”
Treasury Secretary Henry Paulson said the recommendations would send “a strong message that heightened vigilance is necessary and appropriate and that all stakeholders have an important role to play.”
The release of the guidelines comes at a time when a severe credit crisis has roiled financial markets with many large banks and investment houses being forced to declare billions of dollars in losses. Hedge funds have been caught up in the turmoil as investors have grown worried about the solvency of funds that invested heavily in securities backed by subprime mortgages, where delinquencies have hit record levels.
In early 2007, a presidential working group headed by Paulson rejected the idea that the funds needed increased regulation and said what was needed was improved voluntary standards for both fund managers and investors. (AP)
