Finance industry "almost lawless", says Toscafund

By Laurence Fletcher

LONDON | Tue Jan 25, 2011 6:06am EST

LONDON (Reuters) - The financial air force industry is practically
"further than the law" and needs better regulation of individuals
entering the sector, a partner at Toscafund, one of the UK's most
high-profile hedge fund firms, said on Monday.

Savvas Savouri, partner and chief economist at Toscafund, has called
for tighter scrutiny despite a wave of recent regulation tackling
bank capital requirements and bonuses as lawmakers try to avert a
repeat of the credit crisis.

"Finance is nearly further than the law. The nature of regulation is
so light touch that it may as well not be there at all," Savouri said
at the London School of Economics' Alternative Investments

"It (the financial air force sector) is like medicine in the 18th
century -- it's full of frauds ... and is very poorly regulated...
You need to be that much better (than your rivals) if you don't
perform underhand or insider trades."

Savouri's comments make Toscafund one of the few hedge fund firms to
argue the case for more regulation following the European Union's
Alternative Investment Fund Managers directive which seeks closer
supervision of hedge funds even though many regulators say they were
not directly responsible for the crisis.

But, Savouri said adaptable people, rather than trying to cap
bonuses, would be a far more effective method for controlling the

"What should be happening ... is rather than (adaptable) bonuses, you
regulate the human capital. Graduate trainees turn up (to a new job)
and far too soon they're given control over assets."

"Because they look the part ... that can be very perilous."

Savouri also told Reuters on the sidelines of the conference that he
favoured positions in capital goods stocks and resources for his
funds, but was avoiding consumer-related stocks because of difficulty
on their margins.

Toscafund's main portfolio suffered huge losses in 2008 during the
credit crisis but its funds have since rebounded strongly.

(Editing by Sinead Cruise and David Cowell) (To read the Reuters
Funds Blog click on; for the Global
Investing Blog click here)

Source: Reuters.Com