Hedge fund managers have hit back following the Italian Finance Minister’s assertion that hedge funds should be abolished.  The minister recently branded hedge funds as “absolutely crazy bodies” and said he would discuss the abolition of the entire industry with other world leaders.

The London-based Alternative Investment Management Association and the North America-based Managed Funds Association joined forces to hit back at the minister in a statement this week.

Florence Lombard, chief executive at AIMA, and Richard Baker, president of the MFA, described hedge funds as "private pools of capital" that played a vital role in the global economy.

"This is a time of unprecedented instability in the markets, not a time to think about abolishing an industry that is an essential source of liquidity,” they said in a statement.

"In the midst of this global financial crisis, the hedge fund industry is fully engaged with regulators and policymakers to provide solutions that will benefit the markets and help stabilise the economy," the statement said.

The industry has been frequently criticised by governments as villains in the current market drama. Italy’s domestic hedge fund industry is worth about €34 billion and comprised of some 300 funds.

Politicians are quick to criticise hedge funds for excessive risk taking, lack of transparency and gratuitous pay packets for managers in the wake of the global credit crisis.

However, regulators must assume responsibility for market turmoil too, said Ms Lombard and Mr Baker.

“It is too easy to point a finger at an industry that is misunderstood; hedge funds are not an appropriate scapegoat during a crisis that was caused by failures in the regulated banking system,” their statement added.