Kim urges hedge fund watch
SEOUL – President Kim Daejung of South Korea has proposed the formation of a hedge fund monitoring channel to improve stability in the international monetary system.
Speaking at his opening address at the AsiaPacific Economic Cooperation (Apec) “Forum on Shared Prosperity and Harmony”, Kim said the hedge fund monitoring channel would be an appropriate international financial institution during this era of financial globalisation.
“I believe that such a channel will contribute to the stability of international financial markets by enabling a ready exchange of information regarding investment activities of highly leveraged institutions.”
Kim's call reflects the growing concern of emergingmarket countries over the role of hedge funds, most of which are operating secretly and sometimes outside regulatory oversight, in potentially creating financial market instability.
His calls come shortly after the Financial Stability Forum last weekend endorsed a broad range of concrete policy actions to address concerns related to highly leveraged institutions, volatile capital flows and offshore financial centres.
Hedge funds have been pegged as a major cause of the 199798 financial turmoil in Asia.
Yesterday’s news of the liquidation of some US$6 billion under management by Tiger Management Llc, a United States hedge fund, has triggered regional financial jitters.
Kim said he hoped that Apec senior finance officials would discuss the issue actively before submitting their recommendations to the next Apec Economic Leaders’ meeting.
To recover from the economic crisis and guard against future crises, Apec members should develop a foreign exchange forecast model by collectively incorporating past experiences, Kim said.
“Such a model will provide the means by which to provide advance warning of the risks of an economic crisis, based upon assessment of the conditions of individual economies,” he added.
Dr Supachai Panitchpakdi, deputy prime minister and commerce minister, said he agreed with Kim's remarks that hedge fund activity should be closely watched to improve the transparency of the international financial system.
“We are not talking about controlling the hedge funds.
What we would like to do is to monitor their activity so that if anything happens we can respond accordingly,” he said.
Asean members have submitted a proposal to the International Monetary Fund on the need to improve the transparency and the monitoring process of hedge funds. The fund’s response was lukewarm.
In the aftermath of the economic crisis, emergingmarket countries have been apprehensive over the role of hedge funds, some of which overleverage their investment for speculative purposes.
The collapse of LongTerm Capital Management, a US hedge fund worth US$1 trillion, after Russia’s economic crisis in August 1998 served as another wakeup call to the dangerous financial instability created by hedge funds.
According to Morgan Stanley Dean Witter, as of last year, hedge funds in the US managed assets worth US$16.69 trillion, compared with US$5.8 trillion in Japan, US$2.1 trillion in the UK and US$3.8 billion in Germany.
BY THANONG KHANTHONG