Critics Question Value of Report on Hedge Funds

A new report provides some guidelines for overseeing hedge funds. But critics say the recommendations are so vague, they are nearly useless.

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And in financial news, no major new regulations are needed to deal with risks posed by the fast-growing hedge fund industry. That's the conclusion of a committee of top U.S. financial regulators. Their much-anticipated report was released yesterday.

NPR's Jim Zarroli reports.

JIM ZARROLI: Hedge funds have traditionally been very lightly regulated by the U.S. government, but the funds have grown incredibly fast. The industry's total assets are now estimated to exceed a trillion dollars, and they're no longer limited to wealthy investors. Many pension funds now put money in them. So the White House's working group on financial markets decided to look into whether more regulation of hedge funds is needed.

The answer it came back with yesterday is no. The group said the government needs to set general guidelines for the operation of hedge funds. For instance, funds need to be transparent about their operations and management, and only sophisticated investors who can afford to take risks should be allowed to buy into them. But the report says the onus should be on the funds themselves to abide by these principles and it proposed no new regulations.

Among those who criticized the report was Attorney General Richard Blumenthal of Connecticut, which is home to a great number of hedge funds.

Attorney General RICHARD BLUMENTHAL (Connecticut): These recommendations are so vague and so lacking in substance and specifics that they are virtually unenforceable and practically unhelpful. In a perfect world, everyone would already follow these guidelines. But in the real world, we need real protections.

ZARROLI: Blumenthal said the federal government's unwillingness to deal with the systemic risks posed by hedge funds would force states like his to step up their oversight of the business.

Jim Zarroli, NPR News, New York.

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