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Hedge
funds: not a complete no-no
The
issue of hedge funds has been doing the rounds in the regulatory
circles for sometime now, starting with the Securities and Exchange
Board of India (SEBI) report on hedge funds released in
May 2004. Currently there are around 700 FIIs registered with
SEBI, of which 22 to 25% are hedge funds.
In
his recent interview (featured in Business Standard, June 27,
2005), the SEBI Chairman, Mr. M. Damodaran, has expressed the
regulator's perspective and concerns on hedge funds per se and
their exposure to Indian capital markets.
The
Chairman clarified that the traditional concern with hedge funds
is the volatility that they bring to the capital markets on account
of sudden flight of capital triggered by their high risk taking
preferences. However, the Chairman expressed that this would not
be a major concern if there are enough players to balance out
the exit of some players. In fact, in response to the specific
question regarding whether SEBI proposes to take any additional
market stabilization measures he categorically declined and added
that more money and more stocks would be the market's own contribution
to itself. The Chairman also expressed that in terms of hedge
funds the real worry is the character of entities and not the
conduct of the market players.
Thus,
if entities that are regulated in their home jurisdictions are
willing to comply with the KYC norms under the FII regime, they
are welcome provided the home country regulators adhere to governance
levels acceptable to SEBI.
To
read the whole interview,click
here. To read the SEBI report on hedge funds, click
here.
You
can direct your queries or comments to Shagoofa
Khan and Kishore
Joshi.
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