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Hedgeweek Comment: All eyes on McCreevy

The French and German governments have been urging action for months to tackle what they see as a lack of constraints on hedge funds and their managers that has contributed to the global credit crisis and economic slump.

Now the statement last week by US Treasury secretary Henry Paulson that he envisages greater hedge fund regulation as part of his proposals to minimise systemic risk has increased the pressure on the European Union's internal market commissioner, Charlie McCreevy, to look again at the case for pan-European oversight of hedge funds.

'To ensure the market stability regulator can fulfil its role, large, systemically-important institutions, including hedge funds, should be required to have a charter that would permit some type of oversight,' Paulson said last Thursday during a speech at the Ronald Reagan Presidential Library in California.

Paulson will leave his post in less than two months, but his successor, current New York Federal Reserve president Timothy Geithner, seems unlikely to think very differently. Any oversight of hedge funds in the US could well involve the revival of a rule requiring registration of managers that was introduced by the Securities and Exchange Commission in February 2006 but struck down by a federal court four months later.

The rule, which the court ruled exceeded the SEC's powers, required many hedge fund managers with more than a handful of US investors to register with the SEC and open up their books to periodic examinations.

European Commission president José Manuel Barroso has told the European Parliament that McCreevy will present proposals on hedge fund and private equity regulation in December, after the parliament voted to ask the commission to introduce oversight and capital requirement rules for alternative funds.

Up to now McCreevy has argued that the industry does not require additional regulation in Europe, where either funds or managers are regulated in many EU member states. It's starting to look at though the pressure to 'do something' is reaching a level to which the commissioner will have to bow. However, given his record of thoughtful moderation on the subject, if new rules are to be introduced, there are few people the industry would trust more than McCreevy to draft them.

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