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G8 finance ministers pledge vigilance on hedge funds

Finance ministers from the Group of Eight major industrial nations pledged on Saturday to be 'vigilant' on the risks of hedge funds in world financial markets, but stopped short of designing a code of conduct as floated by Germany.

"Given the strong growth of the hedge fund industry and the increasing complexity of the instruments they trade, we reaffirmed the need to be vigilant," the G8 finance ministers said in a communique issued at the end of their two-day gathering at Lake Schwielowsee near Potsdam. While no formal regulation of hedge fund industry is planned, Germany has said that it is aiming to agree the outlines of a voluntary code of conduct for the private pools of largely unregulated capital by the end of its G8 presidency this year.

The United States and Britain have been reluctant to back the call for increased oversight, arguing that market are better placed than governments to regulate the hedge funds. Without mentioning the possibility of the code of conduct, the G8 ministers said "we continued our discussion on recent developments in global financial markets, including hedge funds... Nevertheless, the assessment of potential systemic and operational risks associated with these activities has become more complex and challenging."

 

The communique did make some recommendations, including:
-- The global hedge fund industry should review and enhance existing sound practices benchmarks for hedge fund managers.
-- Counterparties and investors should act to strengthen the effectiveness of market discipline, including, by obtaining accurate and timely portfolio valuation and risk information.
-- Supervisors should act so that core intermediaries continue to strengthen their counterparty risk management practices.
-- Relevant authorities should monitor developments and cooperate among themselves in the exercise of their supervision of hedge funds counterparties.

The G8 is made up of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States. (people.com.cn)