William Donaldson, chairman of the US Securities and Exchange Commission, has given the clearest indication yet that hedge funds face greater regulation as he warned that the $800bn (€670bn) hedge fund market, which is "growing like a weed", could adversely affect smaller investors.

Speaking at the annual conference of American Business Editors and Writers in Forth Worth, Texas, on Sunday, Donaldson said hedge funds need more scrutiny because their actions affect pension funds and millions of smaller investors.