World leaders’ plans to step up regulation of hedge funds will make the $1.4 trillion industry a “scapegoat” for the near-collapse of the financial system, the funds’ lobby group said.

The Group of 20 leaders said yesterday they would extend oversight to all financial institutions important to global financial stability including “systemically important” hedge funds for the first time.

The industry would be regulated by a proposed Financial Stability Board made up of members of the G-20 and European Commission.

“Our industry has turned out to be a scapegoat for other issues,” Andrew Baker, chief executive officer of the London-based Alternative Investment Management Association said in a telephone interview.