In the interest of being clear with investors about risk, financial institutions should disclose their interests in hedge funds, according to a recently released report commissioned by the G7, Reuters reports.  The leaders of the industrialized nations were urged to consider the impact the $1.5 trillion industry has on global financial stability. “It is important to recognize the inherent limitations of summary data in capturing the complex counterparty exposures of many dealer firms to hedge funds,” according to the draft version prepared by the Financial Stability Forum. The forum stops short of suggesting direct oversight, instead promoting strengthening the existing system, whereby dealer firms would report how much they have in hedge funds. Once those risks were identified, regulators would want to see that risk management measures were in place. Hedge funds’ proclivity toward corporate takeovers makes regulators and central banks especially uneasy. German Chancellor Angela Merkel has said she wants an agreement on increased supervisions before the end of the year. The United States and Great Britain, the places most populated by hedge funds, have objected, noting that hedge funds provide better liquidity for the central banking systems. The report also called for more benchmarks for hedge fund performance. “Investors should demand and obtain information on risks and returns that enables them to make informed investment decisions,” the report said. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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