OECD praises benefits of hedge funds

In its latest financial market study the OECD takes a closer look at the question if hedge funds or private equity funds have a beneficial or detrimental effect on financial markets. One opinion is that economic volatility was reduced to a point where high liquidity would not lead to speculative bubbles or other market excess. The opposite opinon states that enourmous amounts of liquidity go from one market to another which leads to over-evaluation of real estate and financial instruments.

The OECD concludes that the emergence of hedge funds and private equity normally leads to beneficial developments in the market. While politicians demand stricter regulation for these funds due to their alleged power and to secure the resistence of financial markets, the OECD praises their stabilizing functions. Private capital funds are seen as important drivers of change and market efficiency. They can react quickly to market signals thereby eliminating market inefficencies and distortions.

The OECD is more critical with regards to the emergence of structured products. They are focused to a larger investment community and promise capital protection combined with higher revenues. These instruments would also be based on a complex trading structure which even technical analysts find hard to fully understand at times, let alone the many retail clients. The OECD also states that these products have not yet been tested under conditions of drastic market volatility and their resistence to it. The OECD estimates that the current market for structured products amounts to $3800 bln. Hedge funds hold $1400 bln. Their financial "strenght" is estimated to be $5500 bln.


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