Treasury and FSA have sent a joint reply to the Commission on hedge funds. They stress the importance to the UK of the hedge fund industry and how high-profile political debate should not obscure fundamental issues. That said, they admit regulators could do more to oversee all entities, including hedge funds, that might contribute to macroprudential risk. The response says that many of the dangers identified that hedge funds could pose could equally occur in other market participants so any regulatory response should not cover hedge funds alone. It is critical to look at the behaviour that causes concern rather than assume hedge funds in themselves cause problems. However, the response notes FSA appreciates the case for ensuring effective disclosure, diversification and risk management tools are in place if the retail market can access hedge funds through funds of funds.
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