EU finance ministers have pledged to move ahead with plans for a code of conduct for hedge funds, and possibly extend it to cover private equity.
But at a weekend meeting in Berlin they conceded further work is needed to establish the scope of such a code and how to monitor compliance.
"There is general agreement that more work has to be done on this issue, but with a more concentrated and targeted approach," said German finance minister Peer Steinbrueck, who chaired the talks because Germany holds the EU presidency.
"It will also be an indirect approach depending on voluntary commitments on a binding code of conduct," said Mr Steinbrueck, who said the code would be a success if the biggest 15 hedge funds that dominate the $1.5 trillion (€1.1 trillion) industry signed up.
Germany is using its EU presidency and its chairmanship of the G8 to press for the creation of a voluntary code of conduct for the hedge fund industry to guard against financial instability in global markets. They view the increasing size of funds under management and their complexity as a risk. Funds have tripled since a bailout of Long Term Capital Management LP in 1998, and fears of their effect on markets have increased since Amaranth Advisors LLC lost a record $6.6 billion in September.
A policy document discussed on Saturday also raised the prospect of extending the code to cover private equity funds, which have grown in recent years.
"There is a need for great vigilance in enforcing existing provisions on market abuse in order to sustain market integrity and confidence in (the) private equity business," said the paper, which also highlighted the benefits they brought to the financial system.
EU finance ministers will attempt to agree formal conclusions at their next meeting in May, although the concession by Germany that further work was needed is likely to delay the introduction of a code of conduct.
Internal markets commissioner Charlie McCreevy, who has been resisting calls for tighter regulation of the hedge fund industry, said there had been "no market failure" in the industry that would necessitate external regulation. He said global hedge funds were "aggressive . . . But they're big boys who know what they're doing".
Minister for Finance Brian Cowen said that hedge funds were increasingly important to the Irish economy due to the high value jobs they created in Dublin. He said he favoured an indirect approach to the issue of a code of conduct and work was required by hedge fund managers to identify what gaps if any existed.
