Institutional Investor's Alpha Magazine - December 2008 / January 2009 - (Page 31)

One force that proponents of pan-European regulation have on their side is the current economic meltdown and the accompanying backlash, which has only fanned the ﬂames of reform. With elections coming up in a number of countries, “governments are trying to assure their constituents that they are attempting to bring the causes of the ﬁnancial crisis under control,” says Sandra Navidi, a New York–based ﬁnance lawyer who advises a number of European multinational ﬁrms. What better way to do it than by cracking down on hedge funds, sometimes portrayed as black-box bogeymen of the free markets. But the argument for more global control of hedge funds persists. “Even we economists who believe that global ﬁnancial innovation yields huge net beneﬁts must admit that today’s hedge fund boom is becoming like the tech bubble,” noted Kenneth Rogoff, a Harvard University economics professor and former chief economist at the International Monetary Fund, in a March 2007 Internet commentary that seems prescient now. “The big question,” he wrote, “is whether this Wild West mentality poses broader risks to the global ﬁnan- cial system, particularly given circumstances where a large number of ﬁrms are all making the same bet. If they lose, a long string of bankruptcies can cut deeply into banking systems that had generated huge proﬁts by lending to these same hedge funds.” The events of the past several months have proved him correct. Today he maintains that the U.K. and the U.S. are collectively the biggest obstacles to a more global system of regulation. It seems only fair to dispute that point, given the likelihood of a new layer of restrictions in the U.S., especially as a new administration takes ofﬁce in Washington and Congress appears more likely to enact more hedge fund regulation. All that the Germans and their European allies are trying to do, he adds, is to look out for investors — an agenda that has the force of popular opinion. In the assessment of Biancarelli, the lawyer in Luxembourg, “Investors are looking for more regulated vehicles — and they want greater protection.” If a set of uniform rules and practices can achieve that, then, perhaps, so much the better. What Asian Contagion? Asia-Pacific regulators, especially in Australia, Hong Kong and Singapore, see little reason to clamp down on hedge funds. By Henry Scott Stokes sia has lived through more than its share of market meltdowns. But as devastating as 2008’s credit-induced global collapse has been, many investors in the region say that for them it pales beside the Asian ﬁnancial crisis of a decade ago, when several countries teetered on insolvency. That crisis began in Thailand in July 1997 with the collapse of the baht and quickly spread to other countries and their currencies. In a ﬂash, liquidity dried up and businesses went bust, as a flood of Western capital fled the region. Mahathir Mohamad, then prime minister of Malaysia, accused billionaire hedge fund manager George Soros of masterminding the speculative attacks and called for a ban on currency trading, which he blasted as “unnecessary, unproductive and immoral.” Soros ﬁred back that he had not been speculating on the Malaysian ringgit and accused Mahathir of being “a menace to his own country.” Eleven years later memories of that clash live on. Mahathir, now a blogger, continues to warn anyone who will listen not to forget how “American hedge funds destroyed the economies of poor countries by manipulating their national currencies.” His views these days, however, have more in common with politicians in the West than in the East. Although there has been a groundswell of sentiment in the U.S. and Europe in favor of a clampdown on hedge funds, many Asian countries are taking a DECEMBER 2008/JANUARY 2009 • INSTITUTIONAL INVESTOR’S ALPHA • 31

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2008

Institutional Investor's Alpha Magazine - December 2008 Contents Letter from the Editor Longs & Shorts Inside the Trade Pension Corner The Good Guys Interview: Stanley Fink Cover Story: The New Regulatory Reality United States: The Usual Suspects Europe: Flirting with Unity Asia-Pacific: What Asian Contagion? In Theory In Focus Strategies Research Center Alpha Bytes Unhedged Commentary

Institutional Investor's Alpha Magazine - December 2008

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