Monday, February 25, 2008
The U.S. Government Accountability Office (GAO) released a report today on Hedge Funds (GAO-08-200). The Report explains that after the near collapse of Long-Term Capital Management in 1998, regulators generally have increased reviews, by means of targeted examinations, of systems and policies of their regulated entities to mitigate counterparty credit risks, including those involving hedge funds. The Report describes those measures and explores the potential for systemic risk from hedge-fund related activities. It notes that regulators have used risk-focused and principles-based approaches to better understand the potential for systemic risk and respond more effectively to financial shocks. The GAO concludes that these are positive steps, but it is too soon to evaluate their effectiveness.