(Update 2) G-8 Finance Ministers Seek Closer Hedge Fund Scrutiny

Potsdam, Germany, May 19 (Jiji Press)–Finance ministers from the world’s eight economic powers Saturday called for closer scrutiny of hedge funds, but Germany failed to win backing for a voluntary code of conduct for the industry.

Germany has sought tighter supervision of hedge funds out of concern that the 1.5-trillion-dollar industry’s rapid growth poses a potential threat to financial market stability.

The Group of Eight finance ministers “reaffirmed the need to be vigilant” on hedge funds because the assessment of their potential risks has become more complex, they said in a statement issued after a two-day meeting.

But Germany, the gathering’s chair, failed to budge the United States, Britain and Japan, which opposed tighter regulation of hedge funds on the grounds that a free-market system is important.

There were many opinions that the code of conduct is unnecessary, Japanese Finance Minister Koji Omi told a news conference.

The statement said that hedge funds “have contributed significantly to the efficiency of the financial system” and backed U.S. and British insistence that indirect regulation through investors and creditors is sufficient to make hedge funds transparent.

“Counterparties and investors should act to strengthen the effectiveness of market discipline, including, by obtaining accurate and timely portfolio valuation and risk information,” the statement said.

Japan’s Omi said he proposed that the eight countries collectively hold talks with major financial institutions on hedge funds. The meeting will be held as early as this autumn, he said.

The G-8 groups Canada, France, Italy and Russia in addition to Britain, Germany, Japan and the United States. The finance ministers’ gathering was designed to lay down guidelines for the June 6-8 G-8 summit in the German resort town of Heiligendamm.

On climate change, a topic that will be high on the agenda of the G-8 summit, the finance ministers called for promoting energy diversification including the greater use of renewable energy and nuclear power.

On the world’s economy, the ministers shared the view that global growth “remains robust,” while citing high oil prices as a matter of concern.

There were no discussions on foreign exchange rates, Omi said.END

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