WASHINGTON -- Heavyweights from the US hedge funds scene, the investment pools for the super-wealthy, threw their support behind better regulation of such funds at a hearing before Congress on Thursday.

"Federal regulation? Yes, it justifies greater regulation," billionaire investor George Soros told the congressional hearing of the hedge fund market, which has often been maligned for its secrecy and short-selling tactics, but lauded for its lucrative returns.

"Clearly, hedge funds use leverage, and they contribute to market instability in times like the present when we are experiencing wholesale and disorderly deleveraging," he said.

But like others who testified he denied that his company Soros Fund Management could be behind the current instability in global markets.

"The salient feature of the crisis is that it was not caused by some external shock like OPEC raising the price of oil. It was generated by the financial system itself," he said.

Soros argued that the "systemic risks need to be recognized and more closely monitored than they have been until now. The entire regulatory framework needs to be reconsidered and hedge funds need to be regulated within that framework.

"But we must beware of going overboard with regulation. Excessive deregulation is at the root of the current crisis. And there's a real danger that the pendulum will swing too far the other way."

Hedge funds are private investment pools that are typically run on behalf of a limited group of wealthy investors.

The global industry, which is worth around $1.7 trillion, has become notorious for the huge fees the funds charge, on the basis that their returns will be so spectacular that they beat conventional investments.

But the funds lost an average of 7.7 percent in the first nine months of this year, according to data from Eurekahedge, a Singapore-based company that monitors the industry.

John Paulson, president of Paulson and Co., one of the biggest hedge funds and most successful despite the crisis, agreed there was a need for greater regulation.

He pointed out that his company had "registered voluntarily with SEC as registered investment advisors inspections."

Paulson said that his firm had predicted the current global crisis as long ago as the end of 2005 and that he had taken precautions to protect his clients.

Philip Falcone, senior managing partner, Harbinger Capital Partners said he also supported greater regulation and more public disclosures, saying "investors have the right to know what assets are on or off balance sheets."

"We are not momentum traders, nor are we day traders. We are investors. It is not magic. My analysts perform thorough due diligence, rather than relying on ratings agencies or other research reports," he said.

"Hedge funds play an important role in the economy by providing needed capital and encouraging creativity and outside-the-box thinking," he added.

But Kenneth Griffin from Citadel said hedge funds were already regulated, and he was not in favor of even tighter rules and regulations.

"Our markets are complex and they must be well-understood if they are to be well-regulated. We must solve the serious issues we face, but not in a way that stifles the best innovative qualities of our great capital markets," he said.