European Commission Adopts Watchful Waiting on Hedge Funds

In the wake of the report of an expert group, the European Commission has adopted a watchful waiting stance regarding hedge fund regulation. The report made a strong case for the proposition that the hedge fund industry has made a positive contribution to the sound functioning of the financial markets without regulatory oversight. But the Commission cautioned that, as hedge funds seek to serve a broader investor base, closer regulatory engagement will be triggered. Even the expert group recognized the need for the independent valuation of the illiquid and complex assets of hedge funds. That said, however, the group believes that such valuation should be managed by codes of conduct and best practices rather than by regulation. After fully digesting the report, and taking in other information, the Commission plans to publish a White Paper in November setting out its conclusions.