The Hindu Business Line : Jury is still out on hedge funds, says SEBI chief

Chennai, Aug. 3 Whether hedge funds are good or harmful? Whether they should be regulated or not? are some of the questions engaging the attention of regulators worldwide and the jury is still out on the issue, said the Chairman of SEBI, Mr M. Damodaran, on the sidelines of a CII meeting here.

Unregulated Funds

Here is what Mr Damodaran had to say about hedge funds: “They come in different shapes and sizes. They are not necessarily just unregulated funds, because there are a lot of unregulated funds that are not hedge funds. Within ‘hedge funds’, a lot of different kinds of funds operate.

For some reason of convenience, they are all called hedge funds.

An attempt to register them in the US was made — forget regulating, registering is the first step. The question arose that does the kind of investor that puts in his money in a hedge fund need the protection of regulation. If the investor says, ‘I’m willing to take the risk, there is no need for your protection,’ there is no need for somebody to jump into that area.

“We are not the home of hedge funds. We are one of the markets they are said to be investing through offshore derivatives and so on, the question that has been raised on occasion is, is it a large presence, is it a destabilising presence. On the positive side, people say, they bring liquidity to relatively illiquid markets.”

Regulatory Community

“I think the jury is out on that one, whether they are a good thing or a bad thing. Internationally, people are talking about it. You had a G8 statement on this, you had the European community discussing this. You have position taken by the German regulator on this, which is different from the position of other regulators in the continent. I think, the entire thing is how to deal with hedge funds, does it require dealing with at all, is the question that the regulatory community across the world is addressing.

“One end of the spectrum you have people who say who want ‘retailisation’ of hedge funds, which is to blur the distinction between a hedge fund and a mutual fund. On the other side there are people who say, no, hedge funds should be kept out of markets. Like everywhere else, the truth is somewhere in-between.”