Soros urges regulation for hedge funds
BRUSSELS (AFP) — Hedge fund pioneer George Soros called on Thursday for regulation of such highly speculative investment vehicles and the banks that lend to them.
"I think that hedge funds need to be regulated like all other market participants," Soros told a conference in Brussels, where he was promoting his most recent book.
The Hungarian-born billionaire financier said that hedge funds would be best regulated through the banking system by requiring banks that lend to them to hold greater reserves.
Soros pioneered hedge funds with his Quantum Fund, which rose to prominence in the early 1990s with hugely successful bets that Britain would have to withdraw from the European Exchange Rate Mechanism, which preceded the euro.
Hedge funds leverage capital provided by wealthy and institutional investors with borrowed money, which they use to make often highly risky and complex trades.
They are currently largely unregulated despite growing calls for action from authorities.
Although the current crisis in the financial sector originated largely in the banks -- the regulated part of the market -- hedge funds have faced intense scrutiny recently because of their huge leverage.
Soros in particular called attention to some hedge funds' use of so-called credit default swaps, which in effect insure an investor against the risk of a borrower's default.
"I think there are some hedge funds that have been operating as unlicenced insurance companies by writing credit default swaps," he said.
While global financial markets were witnessing the bursting of what Soros called a "super bubble," he said that the world did not face a "replay of the 1930s (Great Depression).
"It is the job of the authorities to prevent the system from collapsing. They know how to do it and they are doing it," he said.
"There is no question of a replay of the 1930s."
