Global Rules Tighten
For the time being, as European regulators try to tighten the rules regarding hedge funds, the United States will be seen as a more lucrative place to start one. The exact details of this proposed global regulation is still being hammered out, but the US is said to be creating an environment that would be much more favorable than that of the European market. After the economic collapse that nearly led to a second Great Depression, lawmakers in the United States are looking at putting much stricter rules and regulations into place for the financial industry.
This is a very delicate and complex issue, however. Lawmakers in the US look at the leverage of hedge funds and the fact that they are interconnected as posing a great risk to the monetary system than how big or small the fund is. The regulators in Europe are looking more at placing stringent restrictions on how a fund makes use of debt, as well limiting bonuses that the fund managers would receive. All of these rules, if put into place, would also be applicable to fund managers from the US who might try to bring investors from Europe on board to their funds. This global regulation placed on these types of funds as well as offshore hedge funds is going to make things much more difficult for fund managers by making more complicated for them.
Critics of the new proposed global regulations that are going to greatly effect hedge funds and their managers claim that while new rules are certainly needed, the laws should be kept rational. They also say that lawmakers need to ensure that these new laws and regulations don’t introduce any new unintended consequences to the market. They say that while the United States should continue to look at seeking some much needed transparency, they should also try to avoid allowing offshore hedge funds in financial industries, like Hong Kong, to take any kind of lead in the market.
The United States still has the biggest economy in the world and is still the world leader in the financial market, but it needs to work up some more confidence when dealing with the global financial market. The regulations that the US seeks to implement would deal more or less with trying to control the trading of derivatives, but activities revolving around hedge funds would also be strictly monitored. Since the financial meltdown, regulators are more concerned with creating a new structure that would be better prepared in handling swaps trading.