German Chancellor Gerhard Schroder has said this past week that his government is not interested in imposing any national curbs on hedge funds, the International Herald Tribune reported.
The recommendations come as some politicians within Schroder’s Social Democratic Party and German bankers are scrutinizing the accumulation of risk capital in the funds. Schroder last month expressed concerns about the amount power investors can wield over small to mid-sized companies and strip them of their assets. Strong criticism came after a small group of hedge fund investors were able oust top executives at Deutsche Borse in May. Shortly after, Schroder ordered a three-ministry inquiry into the regulation of hedge funds, according to IHT.
But in the published report, officials in the justice, finance and economic ministries have said adopting regulatory measures, similar to those in France, in Germany alone will not help because they will simply make Germany a bad place to locate hedge funds. Instead, IHT reported that officials said it will be more affective to seek joint controls from the European Union and the United States.
Officials proposed that the EU start to recognize hedge funds as a new “asset class,” which would force the funds to follow minimum controls within the 25-nation union, IHT reported.
Officials also recommended in the leaked report that the EU put indirect pressure on hedge funds by offering incentives such as being able to claim bigger dividends if the investors attend and vote in company board meetings.
German Deputy Finance Minister Caio Koch-Weser said on June 2 that the European Commission will propose controls on hedge funds to the EU at the meeting next month.
Germany began to allow hedge funds to operate in the country last year. Since then, investors have contributed more than $1.22 billion the funds, IHT reported. Already, Germany requires funds to disclose more information about the accounts than other European countries.