Hedge funds could fall victim to financial crisis: French minister

LONDON: Hedge funds could be the next victims of the international financial crisis, French Finance Minister Christine Lagarde said in an interview published Friday.

"Initially everybody thought the hedge fund sector would be the first one to actually cause the collapse," she told Britain's Daily Telegraph newspaper.

"They are vastly unregulated, they have been operating at the fringes, at the margin, and we need to be careful that there is no contamination effect," she was quoted as saying.

Hedge funds guarantee profits for their clients in return for large fees, as opposed to traditional investment funds, which usually only promise to outperform the overall market.

Lagarde did not give any details to the Telegraph on proposals to deal with the situation regarding hedge funds.

"One thing at a time," she said.

"We are working on that at the moment but I don't have the tools and the fixing and the solutions on hand."

On the decline in the stock markets -- in recent days indexes around the world have touched their lowest points in years -- Lagarde insisted that declines were not related to multi-trillion-dollar banking rescue plans unveiled by American and European governments over the past week.

"They are going down for other reasons. A lot of traders and investors expect the economy to go south and, as a result, that companies will not generate the level of profit they expected when they invested in those stocks," Lagarde told the newspaper.

Asked whether France was in a recession, she said: "The problem is addressing the roots of the problem. We have fixed the toothache but not the root canal."