The Washington, DC-based hedge fund industry body, the Managed Funds Association, has announced its support for the establishment of a US systemic risk regulator to restore investor confidence and ensure the proper functioning of capital markets.

MFA chief executive Richard H. Baker (pictured) told a hearing of the House of Representatives' financial services subcommittee on capital markets, insurance, and government-sponsored enterprises: 'While hedge funds were not the root cause of the crisis in financial markets, the hedge fund industry, and those who invest in hedge funds, including pension funds, endowments and others, have suffered considerably as a result of the crisis and the broader economic downturn.

'The restoration of stability and confidence in financial markets will require constructive, collaborative, efforts among policy makers and the private sector towards the shared interest of reestablishing a sound, stable financial system. We believe that goal can be accomplished, in part, through pursuit of a 'smarter' financial regulatory system - one which includes a systemic risk regulator as part of that framework.

'We are committed to being constructive participants in the dialogue regarding the creation of that framework. These are complex issues, and it is vital for policy makers to have a firm understanding of the implications of these proposals on financial markets before making important decisions.'

Baker's testimony stressed that hedge funds were substantially less leveraged than banks and investment brokers, have performed significantly better than the overall market, and have not sought federal assistance.

Baker also noted that hedge funds, as a significant source of private capital, can play an important role in restoring liquidity and stability to capital markets.

'In addition to providing liquidity, hedge fund managers have significant trading and investing experience and knowledge that can assist policy makers as they continue to contemplate the best way to implement the Administration's financial stability plan,' Baker said. 'We are committed to being constructive participants in the regulatory reform discussions and working with policy makers to reestablish a sound financial system.'