It's prejudiced to blame hedge funds for the crisis

As I write, Europe's finance ministers are foregathering to perpetrate one of the most spectacularly futile and stupid pieces of political posturing I can remember.

Regulation is to be brought to bear on the hedge fund industry, an activity which is largely based in London. Estimates are somewhat vague, since hedge fund managers do not have to systematically disclose what they manage. But the best guess is that London has some 80 per cent of European hedge funds, ranked by the value of assets under management. The would-be controllers of this industry want to introduce limits on pay, and other measures designed to promote transparency, etc.

The motivation for all this is the feeling, prevalent especially in France and Germany, that hedge funds are somehow directly responsible for the financial catastrophes of recent times.

This is simple prejudice, rooted in ignorance. Better to do away with market capitalism altogether than try to regulate its most creative players. They participate in the markets that have generated real economic activity (and speculative activity too – they go hand in hand).

But the injustice of the proposals is not important, because they are so badly drawn up that anyone with an ounce of wit will be able to sidestep them. The regulations are set to apply to companies or partnerships with more than 50 employees. Most of the industry participants have a headcount of fewer than 50, and the future structure will be clusters of partnerships of up to 50. Avoiding these regulations will be as difficult as stepping over a dead dog – and thank goodness for that.

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