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Hedge fund regulation 'inadvisable' says US

US regulators and government officials have declared that tighter regulation of the booming hedge fund industry would be "inadvisable", amid concerns that unnecessary legislation would drive the lucrative funds abroad.

Speaking at a Senate Banking Committee hearing on hedge funds, US treasury official Randall Quarles said that there was no present need for tighter regulation of hedge funds, although he promised that the treasury would be keeping a close eye on the industry, and judging the impact that it's having on the US market.

"The treasury will be examining in detail the issues [concerning hedge funds] with a view to evaluating whether the growth of hedge funds – as well as other phenomena such as derivatives and additional alternative investments and investment pools – hold the potential to change the overall level or nature of risk in our markets and financial institutions," Mr Quarles said.

He added that there was "some reason for concern" that over-regulating the industry could force hedge funds abroad, where industry rules would be less strict.

Although not a new invention, hedge funds have seen a huge growth in popularity among wealthy private investors and institutions in recent years.

Currently, the global hedge fund market is reportedly worth over $1 trillion, with its influence in world markets increasingly being felt.

However, concerns over the potential instability that hedge funds could bring have led to many calling for closer scrutiny of the funds and their managers.