UK – The head of financial market stability at the International Monetary Fund said the Dutch financial regulator AFM “was not wrong” to be concerned about the lack of transparency in hedge funds.
“Transparency is better today than it was in years past,” Todd Groome told IPE. “But it could be better,” he said, referring to statements last month by the Autoriteit Financiële Markten. Groome was speaking in his personal capacity.
Improved transparency was attributed to the inflow of institutional money coupled with institutional demands on hedge funds for greater transparency.
Groome was speaking on day two of the Hedge 2005 conference in London on ‘Hedge Funds and Systemic Risk’. He also highlighted certain findings in the IMF’s Global Financial Stability Report (GFSR).
He was confident that institutional money and other money targeted would continue to come in.
“The demand by institutional investors to place capital with hedge funds continues to grow, and is likely to continue for some time,” confirmed the GFSR.
“This trend is fuelled by investors’ desire to enhance returns from active asset management, and to seek greater portfolio diversification.”
Groome stated that smaller pension funds were more likely to invest in fund of funds rather than hedge funds due to high costs and small resource pools.
The IMF has taken no stand on whether hedge funds should be regulated or not.
However, hedge funds “can see regulation coming their way” and want to be engaged in the debate, said Groome.
This was among the findings of a survey of hedge funds in the UK and USA, and other institutions active in London by the UK financial watchdog, the Financial Services Authority (FSA).
In response to a question on the perceived lack of hedge funds’ popularity, Groome said: “It will simply require more time and familiarity with the hedge fund environment.”
He also stated that pension funds might find hedge funds marginally more attractive if they were offered uncorrelated or less correlated returns.