Hedge funds and systemic risk in the financial markets: hearing before the Committee on Financial Services, U.S. House of Representatives

Original publisher: Washington : U.S. G.P.O. : For sale by the Supt. of Docs., U.S. G.P.O., 2007. LC Number: KF27 .B5 2007e OCLC Number: (OCoLC)164324039 Subject: Hedge funds -- United States. Excerpt: ... 11 sures to their investors and counter-parties without detailed gov-ernment mandates. Consequently, we would suggest that policy-makers, instead of creating distinctions between these types of en-tities, treat all private pool investment vehicles similarly, regard-less of their underlying investment strategies. Even though we may all use the term ' ' hedge fund ' ' in the context of today's hearing, the most accurate phrase is not ' ' hedge fund ' ' but ' ' private investment company. Second, in terms of investment activity, the buying or selling of securities or commodities or derivatives, hedge funds are but one type of many market participants engaged in the same activity. Again, in order to gain the most complete understanding of the subprime mortgage market, to use a recent example, one should not focus solely on a single segment of the market but should look at all participants engaged in that activity. Looking at mortgage securitizations solely through the prism of hedge funds without looking at banks, investment banks, insurance companies, and other types of dealers and investors will create a distorted picture of how and why that market operates as it does. This is not to say that hedge funds should not be included at all in such a distinction, quite to the contrary, we are an important part of the equation. But hedge funds are not nearly so significant in and of themselves that they should be the focus of attention to the exclusion of other market participants doing the same thing. A focus on the activity, not the actor, is more likely to yield the infor-mation desired by policymakers in assessing the appropriate level of oversight and regulation. Third, the phrase, ' ' lightly regulated, ' ' which typically is applied to hedge funds and other alt...