updated 4/11/2007 2:00:08 PM ET 2007-04-11T18:00:08

The current market-based system is the best way to regulate the trillion-dollar hedge fund industry although improvements can be made, Federal Reserve Chairman Ben Bernanke said Wednesday.

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Bernanke, speaking to a conference on global economics in New York City, said that the current system is superior to increased government regulation. That view is at odds with critics who say large failures in recent years highlight the need for greater supervision.

“Thus far, the market-based approach to the regulation of hedge funds seems to have worked well, although many improvements can be made,” Bernanke said in remarks prepared for delivery to a global economic conference sponsored by the New York University law school.

Bernanke noted that the collapse of a Connecticut hedge fund, Long-Term Capital Management, came during a period of severe financial stress in 1998.

He said Congress correctly rejected suggestions after that failure to impose greater government regulations. He said in the last 10 years the ways investors have to manage risks “have become considerably more sophisticated.”

Bernanke did not mention in his speech last fall’s collapse of another hedge fund, Amaranth Advisors, which critics contend shows the need for greater government oversight.

Instead, Bernanke said he supported the conclusions reached by the President’s Working Group in February, which stated that what the hedge fund industry needed was increased vigilance on the part of investors rather than new government rules.

“To be clear, market discipline does not prevent hedge funds from taking risks, suffering loses or even failing — nor should it,” Bernanke said.

“If hedge funds did not take risks, their social benefits — the provision of market liquidity, improved risk-sharing and support for financial and economic innovation, among others — would largely disappear,” he said.

Bernanke is a member of the President’s Working Group, which was formed in the wake of the 1987 stock market crash. He has previously stated worries that the government could over-regulate hedge funds.

There are more than 9,000 hedge funds with assets that now top $1 trillion in the United States. They traditionally have catered to the rich but smaller investors can be exposed through holdings of pension funds.

The funds, which operate with minimal government supervision, can invest in anything from commodities to real estate. Some hedge funds buy entire companies while others buy and sell stocks like day traders but with billions of dollars at stake.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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