Germany has switched tactics in its efforts to police the fast-growing global hedge fund industry, hoping to overcome US and British scepticism by encouraging the industry itself to compile a voluntary code of conduct.
Washington and London would support a code that emerged “spontaneously” and “voluntarily” from the hedge fund industry, Peer Steinbrück, German finance minister, said after meeting colleagues from the Group of Eight industrial nations in Potsdam at the weekend. If funds adopted a code themselves “then we have the same opinion”, he said.
Since the beginning of the year, Germany has urged action to avert possible threats to financial stability created by hedge funds. It has won support for a voluntary code from the European Central Bank, as well as other European countries. But the UK and US have been wary of any proposal that would amount to a government-imposed solution or one that created a regulatory burden. France has voiced similar concerns.
The G8 ministers, however, supported the recommendations for action in a report released at the weekend on hedge funds by the Financial Stability Forum, an international grouping of regulators and central bankers chaired by Mario Draghi, Italy's central bank governor and a former vice-chairman of Goldman Sachs International.
The report urged the industry to “review and enhance existing sound practice benchmarks for hedge fund managers” – especially in the areas of risk management and exchanging information with investors and their banks. One British official said that the report's conclusions “should not frighten the horses as far as the UK hedge fund industry is concerned”. Asked if the report’s recommendation could lead to a voluntary code of conduct, Gordon Brown, the British chancellor of the exchequer and prime minister-elect, said: “You decide what you think that is.”
Robert Kimmitt, US deputy secretary of the Treasury, added: “A code of conduct that is voluntary would be spontaneous and would be developed by the actions of the industry rather than by governments calling on the industry to do something voluntarily.” Germany said the debate would continue into next year under the Japanese presidency of the G8.
Separately, the finance ministers called on creditor countries to support good governance and debt sustainability in Africa. Mr Steinbrück said he was concerned that the lending practices of some countries, including China, needed to be improved, adding that this would be addressed at a summit of G20 industrialised and developing countries in South Africa in October.
Campaign groups attacked the finance ministers for refusing to discuss how to increase development aid, despite evidence from the OECD and elsewhere that G8 countries were falling behind on pledges made in 2005 to increase aid by $50bn (€36bn; £25bn) by 2010.
Oliver Buston, European director of Data, the London-based pressure group, said the ministers were in a “collective state of denial about being off track on aid”.