* Funds play "essential" role in financing the economy
* Marks shift from traditional French anti-finance rhetoric
* "Tactical" attempt to rebuild relations - fund manager
* Left-wing lawmakers say they want to make law tougher
(Adds lawmaker comment)
By Lionel Laurent
PARIS, Feb 5 Hedge funds play a vital role in
the French economy, finance minister Pierre Moscovici said, in
comments aimed at defending a government plan to ringfence
banks' proprietary trading and leave hedge-fund financing
The proposed reforms, set to be debated in parliament this
month, would force banks to make proprietary trading a separate
self-funded entity and ban them from owning or operating hedge
funds. Secured hedge-fund financing would be left intact.
"While some of these funds have strategies that should be
criticised, today the vast majority are necessary and essential
players when it comes to financing the economy, whether we like
it or not," Moscovici wrote on his official website on Tuesday.
He cited small to medium-sized companies raising funds on
the convertible bond market as an example of hedge funds'
usefulness. "Hedge funds can represent 60 to 80 percent of
demand on this market and so are essential for placing the
securities in the best possible conditions for the companies."
Moscovici's stance was at odds with traditional anti-finance
rhetoric from politicians on all sides. President Francois
Hollande said during his 2012 campaign that "speculative funds
... (were) vectors of instability", while his predecessor
Nicolas Sarkozy called them "predators" in 2007.
A Paris-based hedge fund manager said the government was
changing its rhetoric to drum up support for the reforms and
also to build confidence at a time of economic stagnation and
bad blood among voters over stubbornly high unemployment.
"For 10 months the government has spent so much time bashing
entrepreneurs and the business world that it must be thinking it
is time to mend relations," he said. "It is tactical."
France's proposed bank reforms have been panned as too soft
by critics including Brussels-based Finance Watch, especially
compared with recommendations by the European Union's Liikanen
Commission for a broader separation of all trading including
"What (Moscovici) seems to be saying is that there is no
speculation anywhere anymore," said Thierry Philipponnat, head
of Finance Watch, adding that hedge funds bought convertibles to
support their own strategies, which included short-selling, and
to finance the economy.
While most politicians have, so far, played down the
likelihood of a major overhaul of the reform in parliament.
However, some left-wing members of parliament are in talks to
toughen up the bill by voting amendments through.
"We will propose many amendments because it is really
lacking in several areas ... The separation (of activities) is
not clear enough," Communist lawmaker Andre Chassaigne said.
Meanwhile, the head of French bank Credit Agricole
, Jean-Paul Chifflet, said a stricter reform law would
hurt banks' ability to lend. "Going beyond the current plan,
with a stricter separation of banks' operations, would be
serious for our country," he told Les Echos newspaper.
(Additional reporting by Emile Picy; Editing by Louise Ireland
and Dan Lalor)