Percy Reports From Davos: Larry Summers on Hedge Fund Regulation
You'll recall my concern regarding German Chancellor Angela Merkel's speech opening the World Economic Forum. She spoke of minimizing systemic risks in world capital markets, which I took to mean: "let's regulate hedge funds more." Fortunately, there are many smart Americans here in Davos to counter these crazy Germans. From Bloomberg:
"I worry a great deal about the unintended consequences of regulation," said Lawrence Summers, a former Treasury secretary under President Bill Clinton who is now part-time managing director of D.E. Shaw & Co., a hedge fund company. "I'm rather skeptical of the feasibility of reducing systemic risk through more comprehensive regulation."
I have always taken the view that hedge funds need scrutiny and regulation. It is to the benefit of the consumer that there is full disclosure along the way. Although there are many myths about hedge funds that are not true, like they are full of lofty managers aimed at hurting the economy when if fact they are serving to make it more efficient and stable.
Hedge Funds by name are kind of misleading. I think what needs to happen in American regulation is that we distinguish between what traditionally would be known as hedging, protecting ones capital, and an Investment Fund that takes positions in the markets. It would be nice to have some legislation clarify the difference. They have Investment Funds in Ireland and I think that this is what they should properly be called.
Evan Andersen, Lydia Capital
Evan -- You are right about the term "hedge fund." It has really come to mean any pool of capital that invests in assets that have a readily ascertainable market value and gives investors periodic withdrawal rights. As you may know, the SEC recently tried to define "hedge funds," but the actual use of hedging wasn't part of that definition.
As for the need for scrutiny and regulation, hey, I'm a skeptic.