Hedge fund managers, including George Soros, John Paulson and Philip Falcone, are being summoned to Capitol Hill on Thursday to testify under oath about the potential risks their firms pose to the broader economy.Mr Soros and Mr Falcone will appear alongside John Paulson of Paulson & Co, James Simons of Renaissance Technologies and Kenneth Griffin of Citadel Investment Group.
People familiar with the matter say the five hedge fund managers were chosen because they were amongst the top earners in the industry.
Hedge executives expect that the hearing will focus on questions including whether hedge funds have become so large that they threaten the stability of the financial system â?? either because of the impact of their trading or because of the impact of the failure of even one big hedge fund. A subsidiary question in this regard is whether hedge fund compensation practices encourage reckless risk taking.
Another issue expected to be discussed will be short selling, or the practice of selling borrowed shares in anticipation of a fall in price. Hedge fund managers and consultants say the hearings may be a prelude to stiffer regulation.
The committee said the managers had co-operated with a long list of requests for documents, including e-mails detailing the level of risk associated with each hedge fund, the value of their positions in mortgage-backed securities, the likelihood of the fundâ??s collapse and the compensation and tax treatment of pay received by top managers.
