Germany's Bundesbank has called for hedge funds to introduce a code of conduct and let themselves be assessed by rating agencies, newspapers reported on May 17.
The Financial Times and Financial Times Deutschland said Bundesbank board member Edgar Meister had warned action was needed to avoid future disasters in the $1.1 trillion hedge fund industry. "We cannot just wait until a crisis happens," said Meister, who is responsible for financial supervision at the German central bank, adding that risks were increasing.
Rating agencies could analyse potential risks to financial stability, including risk management, as well as the performance of funds under the voluntary regulatory system and publish their findings, he said.
"Rating agencies could play a greater role to create transparency for investors and business partners," Meister said.
Hedge funds have come under intense scrutiny recently amid concern that high leverage and risky strategies might lead to price swings that could destabilise financial markets.
The Alternative Investment Management Association, an industry body, said last year funds would consider adopting a code of conduct to alleviate concern over high risk and lack of transparency in the fast-growing business.