Top hedge funds see more rules coming

By John Poirier and Svea Herbst-Bayliss

WASHINGTON/BOSTON (Reuters) - Some of the world's richest hedge fund managers conceded on Thursday that their secretive investment industry would have to disclose more information to satisfy financial regulators.

In a rare appearance before lawmakers on Thursday, George Soros, James Simons, John Paulson, Philip Falcone and Kenneth Griffin were quizzed about the $1.7 trillion (1.1 trillion pound) industry's use of borrowed money, the taxes they pay and their desire to keep their investments secret.

Rep. Henry Waxman, a California Democrat who heads the House Committee on Oversight and Government Reform, called the hearing at a time when hedge funds have been criticized for accelerating the worst financial crisis since the Depression.

"Currently, hedge funds are virtually unregulated," Waxman said. "They are not required to report information on their holdings, their leverage, or their strategies. Regulators aren't even certain how many hedge funds exist or how much money they control."

Hedge funds, which are delivering their worst-ever returns this year, have been blamed for contributing to the collapse of two major investment banks, Bear Stearns and Lehman Brothers, and for having kicked stock prices lower in recent weeks.

George Soros, a Democrat who left retirement at age 78 to resume running Soros Fund Management, said hedge funds played a role in the financial crisis and will suffer the consequences.

"The bubble has now burst and hedge funds will be decimated," said Soros, who earned $1 billion by betting against the British pound in 1992. "I would guess that the amount of money they manage will shrink by between 50 and 75 percent."

Soros offered a bleak outlook for the global economy.

"A deep recession is now inevitable and the possibility of a depression cannot be ruled out," he said.

MORE DISCLOSURE AHEAD

Several fund executives, when questioned by lawmakers, acknowledged hedge funds could pose systemic risks to the financial system. But they also said Lehman and banks that used too much leverage played a big role in the crisis and urged regulators to tighten rules there.

Speaking about themselves, some agreed that regulators should be given greater insight into how they make money.

Soros said "yes," Simons said "yup" and Falcone, who runs Harbinger Capital, added "I agree," when lawmakers asked the panel if U.S. regulators should be able to look closely at their trading positions to prevent an unraveling of the whole financial system.

But any trading data should stay with regulators and not surface in the news media, said Simons, a former mathematics professor who now runs Renaissance Technologies.

Kenneth Griffin, who has run Citadel Investment Group for 18 years, was generally opposed to new regulations. "We do not need greater regulation of hedge funds. We've not seen hedge funds as a focal point of the carnage," he said.