Schroeder seeks tougher rules for hedge funds
13 June 2005, BERLIN - Chancellor Gerhard Schroeder announced a crackdown targeting hedge funds in Germany during a speech on Monday apparently aimed at rallying support for his faltering re-election bid.
13 June 2005
BERLIN - Chancellor Gerhard Schroeder announced a crackdown targeting hedge funds in Germany during a speech on Monday apparently aimed at rallying support for his faltering re-election bid.
"Foreign investors and also investment funds are and remain highly welcome in our economy. But what remains decisive is that they play by the rules of our social market economy," said Schroeder.
Schroeder said recent activities of hedge funds in Germany had "correctly" raised questions about the methods used by such investors.
This appeared to be a reference to the widely publicised case of bathroom fixtures maker Grohe which is closing down factories that are making profits to further boost the group's overall profits, according to sources at the company.
Grohe Water Technology has been bought by Texas Pacific Group and Credit Suisse First Boston (CSFB).
Schroeder announced a three-pronged approach aimed at clamping down on hedge funds in Germany.
At the national level, he said legislation was being considered which would mandate that hedge fund purchases using borrowed securities be reported to financial oversight bodies.
In the European Union, he said that Germany would seek to boost regulation of hedge funds by having them included in planned new investment fund guidelines for the 25-nation bloc.
Finally, the chancellor said he would ask leaders at the annual summit of the Group of Eight (G8) industrial nations next month in Gleneagles, Scotland to agree international minimum standards for hedge funds.
Hedge funds, which have grown greatly over the past decades, employ a variety of tactics to maximise investment for their generally wealthy investors.
These include 'short sales' or the sale of borrowed securities considered overvalued with the plan to purchase them later at lower prices for a profit; 'arbitrage' which exploits short-term price differences between securities through buying the cheaper one and selling short the more expensive one; and finally 'leverage' which is a term for the potentially risky borrowing of money to increase investment portfolio size.
The leader of Schroeder's Social Democratic Party (SPD), Franz Muentefering, last month slammed hedge funds as a plague of "locusts" which descended on German companies and picked them clean before flying on to look for new victims.
Schroeder made his jab at hedge funds as his re-election bid was hit by dual problems.
On the one hand, his opposition conservative challenger, Angela Merkel, enjoys much stronger than expected support and is siphoning off crucial centrist votes.
But on the other hand, a newly-founded leftist group of the post- East German communists and a western German protest group with renegade former leader of Schroeder's SPD, Oskar Lafonaine, could steal votes needed on the left.
Schroeder, who last month called for early national elections, badly trails Merkel in opinion polls with voting expected to take place 18 September.
Schroeder's SPD-Greens government is currently at 37 percent, compared with 51 percent for Merkel's Christian Democratic alliance (CDU/CSU) and its Free Democratic (FDP) ally, according to a ZDF TV poll.
Speaking on the condition of anonymity, a German government official said it was recognised that Schroeder had few chances of winning a third term.
"Four pillars of the SPD re-election bid have collapsed," said the official.
"Schroeder has lost the media support he enjoyed; he has lost the left-wingers in his own party; he has failed to deliver jobs; and with rejection of the European Union constitution by French and Dutch voters a key part of his foreign policy has been discredited," the official said.
Subject: German news