The force of the knock across the financial sector over the past 12 months has exposed the weaknesses in the global financial tectonic plates. From New York to London to Hong Kong to Tokyo, the newly formed global network cracked under the strains of the economic quake as the ground shook. Some of the institutional pillars of the financial world shook. Iceland fell; Lehman Brothers and Bear Stern crumbled; Merrill Lynch saved itself by securing an all-stock buyout with Bank of America; Goldman Sachs found comfort in Birkshire Hatherway. The financial landscape remodeled itself nearly everyday as Hedge Fund executives observed through pink pages.
The quake also exposed some significant cracks within the financial foundations. Bernie Madoff showed the world how an unregulated sector of the financial ecosystem could be fuelled purely on self-confidence and yet still report colossal gains. The global networks that supported the highs of the FTSE 100 and Dow Jones showed vulnerability as a domino effect fell across the globe. As the seismologists arrived and the Governmental aid and private investment doused out the flames the land looked bleak. The public confidence in institutional governance and reporting became sulfuric and the frustrations into the prohibitive workings of such operations as hedge funds solidified into forms of regulatory reviews.
And now that the land is still and the dust has settled people, companies, markets and economies are looking for learning’s from the past to strengthen their future prospects. And like all scorched land, grass roots are beginning to appear as a newly fertilized financial ground bears opportunity. Within the hedge fund market acquisitions are strengthening the larger firms while newly considered regulation is potentially increasing the accountability and transparency of their every day business. This bodes well for public confidence in fund and asset management.
The regulation of hedge funds, rather like the funds themselves, is a complex matter. Because of their different properties and practices, hedge funds as a group are best understood from a legal, not economic, perspective, as hedge funds typically are exempt from the registration and disclosure requirements of the financial industry. This results in no official hedge funds statistics with little outside knowledge about their financial movements. This is not helped by hedge funds being based in offshore jurisdictions, making them look even more suspicious.
One solution to this scepticism is to introduce better regulation. This would produce more accountable hedge fund managers in future and the investors would be able to simply research the background of a hedge fund manager before entrusting their money into his or her hands. The result is beneficial for both investor and hedge fund as regulation would produce a safer hedge fund market that would attract a larger number of investors.
So, though the once scorched landscape may currently look barren, with it brings re-fertilized opportunity and prosperity where public confidence and fund management accountability will fuel green shoots and provide sustainable and stable growth throughout the sector.
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