In an article by R. Gopalakrishnan of the Hindu businessline, he writes about the need for more hedge fund participation in India. Marti Subrahmanyam, a Charles E Merrill Professor of Finance and Economics at the Stern School of Business, New York University, held a seminar last week organised by the Confederation of Indian Industry (CII) on hedge funds.

During the seminar, Prof. Subrahmanyam said the negative attitude of monetary authorities and other regulators towards hedge funds arose out of the “fear of the unknown” and they needed to be educated on the role played by hedge funds, which constitute the largest market for investment banks. No doubt there were certain negatives in the case of hedge funds like easier entry and exit and “huge contagion effect in emerging markets” which were “part of the game”. “We cannot ban electricity just because it could involve certain hazards like shocks”, he said.

He said there was no reason why portfolio investment, including investment by hedge funds, would be withdrawn from India if the returns from the market were good.

Three years back, when the Indian markets were the only markets showing robust GDP growth, corporate results were good and improving, but P/Es were low. Hedge funds came in, followed closely by the emerging market funds.

The professor, who is also on the board of some Indian companies including Infosys Technologies, tolt the Hindu Buisnessline that almost $1.2 trillion was invested by hedge funds globally in the first quarter of 2006.