The UK Alternative Investment Management Association has defended the hedge fund industry and its level of regulation after European leaders at the weekend’s Berlin summit singled out hedge funds as being particularly in need of oversight.

In a group statement, the summit’s attendees reiterated the need for all participants in financial markets to be subject to the appropriate level of oversight.  “This is especially true for those private pools of capital, including hedge funds, that may present a systemic risk," the statement said.

While AIMA welcomes the prospect of a global consensus on the future regulatory framework of the hedge fund industry, the association has pointed out that a high level of regulation is already in place.

Andrew Baker, AIMA’s chief executive, said in a statement: “It is important to stress that hedge fund managers in Europe are currently rigorously regulated at both national and European levels. For example, a significant majority of Europe’s hedge fund industry is based in the UK and the FSA has a stringent process of authorisation of hedge fund managers and a highly effective system of supervising the largest hedge funds. Other national regulators across Europe also have demanding and effective structures in place. The industry is also subject to a whole range of European directives.”

Mr Baker also took issue with the notion that hedge funds carry a particular systemic risk. “The hedge fund industry in Europe and elsewhere has been hit very hard, like other sectors, by the current crisis, but has responded in an orderly way and has not triggered any systemic risks.”

He went on to assert that the hedge fund industry was not the cause of market turmoil, and will in fact be an essential part of financial recovery due to its role in providing liquidity.

“With a significant part of assets under management coming from institutional investors, the hedge fund industry plays a key role in preserving savings and pensions across Europe and also generates tens of thousands of jobs across the continent. It is part of the solution, not part of the problem,” Mr Baker added.

Investment vehicles such as hedge funds have been criticised by politicians for their role in the current financial crisis. Meanwhile, governments in countries such as the US and UK have already moved to restrict hedge funds’ use of techniques such as short-selling. However, some analysts argue that such restrictions are unwarranted and counter-productive in the long run.