FINANCE Minister Paula Cox has said that a push to tighten supervision of the global hedge fund industry unfairly penalises offshore financial centres, some of which already have “pristine” regulatory controls in place.In an interview with news agency Reuters yesterday, Ms Cox said it appeared that some of those calling for closer scrutiny of hedge funds are looking to use regulation to “unfairly weight competition” in favour of onshore financial centres.

“It seems to me that offshore financial centres are being unfairly penalised when in many cases we already have a very pristine regulatory environment,” she said.

“Sometimes it seems that people are looking at regulation as a way of trying to unfairly weight competition in their favour.”

Hedge funds, which use a number of sophisticated and — some would argue — risky investment strategies, have traditionally been the preserve of extremely wealthy investors but are now catering to an ever broader investor base, including pension funds. Bermuda is one of the world’s main offshore havens for hedge funds, attracted by the island’s low tax rates.

It is the industry’s tripling in size over the last seven years, coupled with the collapse last year of hedge fund Amaranth Advisors, that has put the sector firmly in the regulatory spotlight.

The debate over whether the $1.9 trillion hedge fund industry is in need of greater oversight has heated up in recent months, with both the European Central Bank and G7 finance ministers increasingly concerned at the strengthening market power of such loosely-regulated investment firms, the majority of which are domiciled offshore.

In February, the G7 commissioned a group of regulators and institutions to produce a report on the hedge fund industry. The task-force, known as the Financial Stability Forum, is due to publish its report in time for the next G7 meeting in May.

But Ms Cox said that the debate over hedge fund regulation should not focus on any differences in approach between offshore and onshore financial centres.

“From our perspective we think that the distinction between onshore and offshore is farcical in many regards and that the real focus should be on proper and prudential supervision,” she said.

Ms Cox said onshore centres could learn much from countries such as Bermuda, which have regulatory regimes that foster greater transparency and disclosure among hedge funds without being “unduly burdensome” for investors.

“If you look at the calibre of supervision and how we manage things I think we already have raised the bar,” she said.

“I am not sure that those markets that are onshore have the same level of regulatory supervision.”

Under the Investment Funds Act, which was passed into law last year, fund administrators domiciled in Bermuda are now regulated and licensed.

The legislation sets out the minimum requirements that must be met by fund operators and sets out new rules for the filing of prospectuses.

“We have a fair amount of legislation already in existence . . . We have a fair amount of disclosure,” she said.

“The problem is that if you just adopted unthinkingly then you make the cost of doing business almost insurmountable.”

We’re being unfairly penalised says Cox