IMF Funding and Hedge Fund Regulation
The G20 meeting has slipped quietly below the water line as a news story in the United States—replaced by Michelle Obama's star power, the North Korean rocket, and the NCAA basketball championships. However, there are still some ripples from it moving across the seascape of U.S. politics.
In Europe, on the other hand, policy proposals are being drafted and, sometimes leaked, to gauge the views of constituents. The EC Commission’s proposal (though it has yet to be formally adopted) concerning regulation of private equity and hedge funds, an issue also hotly debated at G20, found its way into the media today—managers of hedge funds and private equity funds need to be registered while their funds must hold a minimum level of capital and also disclose information on borrowing to regulators.
Furthermore, fund managers using high levels of leverage would have to reveal aggregate borrowing levels to national regulators and would also have to disclose the type of leverage and its main sources, including to investors. Such information would also be shared with the recently-announced European Systemic Risk Council. In addition, fund managers will have to give national regulators information on each fund's exposure to illiquid assets and risk profile, and would need to disclose their plans on asset valuation.
In the United States, when the president and Congress return to work after the Easter break, the $100 billion pledged to the IMF by the president in London will be addressed. Congress will need to approve the spending for that allocation and it may prove to be contentious. As Congress left Washington last week, there were already some rumblings from the Republican side about spending these additional sums.
In part, Obama gave his opponents some ammunition with his pre-summit chiding of the Europeans to do more to stimulate their economies. The argument may emerge that if the Europeans aren't doing enough for themselves, why should we provide IMF assistance that will go to some EU nations and to other European countries aspiring to enter the union. In the end, it is unlikely there will be enough opposition to stop the IMF contribution. However, the debate will provide an interesting barometer of the amount of prestige the president brings back from Europe.
