BRUSSELS (Reuters) - Hedge funds operating in the European Union do not need to be controlled by new rules, a senior EU official said on Tuesday, even as the bloc’s finance ministers called for more vigilance of the sector.
European Union Internal Market Commissioner Charlie McCreevy said he would back plans for a voluntary code of conduct to increase transparency in the $1.6 trillion (800 billion pound) global industry.
“That is probably the way to go,” said McCreevy, the 27-nation bloc’s top financial watchdog.
Hedge funds are in the political spotlight due to their sometimes aggressive tactics to unlock more value from investments. London-based hedge fund TCI helped put Dutch bank ABN AMRO into play as a takeover target.
EU finance ministers, meeting on Tuesday in Brussels, agreed hedge funds have contributed significantly to making the financial system more efficient, but presented potential risks.
Creditors, investors and authorities should watch closely for any risks posed by the loosely regulated sector, they said.
“In this context, creditors and investors should also examine whether the current level of transparency of hedge fund activities is appropriate,” the meeting concluded.
EU president Germany wants more transparency but its plan for a code of conduct was not mentioned specifically in the meeting’s conclusions on Tuesday — a sign of how EU countries still disagree on how to handle the issue.
German Finance Minister Peer Steinbrueck said central banks worry about what could happen to the sector in a downturn or with a change in interest rates.
“These are not just daydreams but real issues,” Steinbrueck told a news conference. But he added there was consensus that binding legislation would be the wrong approach.
Ministers were told by an advisory committee that more analysis will be done to find the level of transparency needed.
They stopped short of calling for new rules to oversee the sector, reflecting the lack of consensus among EU states on whether tougher oversight was needed, and in what form.
Instead, the indirect method of supervising hedge funds through monitoring credit exposure of brokers to the sector should be continued, the ministers agreed.
This marks a victory for states such as Britain which is against tough new conditions in the sector. London is home to a big chunk of the global hedge fund industry.
Steinbrueck noted the conclusions came after only three months of discussions. “We are hoping very much we can sign a code of conduct by the end of this year,” he said.
A meeting of G8 finance ministers in Germany this month is also set to endorse the current supervisory system.
McCreevy distanced himself from playing any role in drawing up a code of conduct, unlike his central role in drawing up and enforcing a voluntary code signed by the bloc’s securities clearing and settlement industry to improve transparency.
Dutch Finance Minister Wouter Bos, who will decide on any takeover of ABN AMRO, said the steps agreed by ministers on Tuesday were a useful. “But there is still quite an issue about shareholder activism and private equity throughout Europe that really has not been covered in the discussion yet,” Bos said.