The Hedge Fund Working Group (HFWG) today published its best practice standards for hedge fund managers following widespread consultation with the industry and other interested parties.
The body of voluntary standards includes recommendations for managers to adopt an independent process for valuing portfolios and to put in hand robust governance of funds. In each case this is to handle conflicts of interest between managers and investors. The report also recommends enhanced disclosure to investors and that managers should have a comprehensive framework to manage risk an important area in the context of financial stability.
The HFWG, comprising 14 leading hedge fund managers based mainly in London, was set up last year in response to concerns both about the growing impact of hedge funds and financial stability. The standards aim to address these and other issues through increased disclosure to investors and other counterparties.
“Our final report is the result of extensive consultation within the financial industry,which has helped us to refine the standards and in some important respects make them more rigorous,” says Sir Andrew Large, chairman of the HFWG. “Now it is up to investors to help take this forward. This is a voluntary, market-led initiative based on disclosure. It is the investors who can provide the market discipline to ensure these standards are widely adopted.”
Compliance with the hedge fund standards will be voluntary and will operate on a “comply or explain” basis. A new Hedge Fund Standards Board (HFSB) is being set up to act as custodian of the standards. The trustees of the HFSB will be responsible for updating the standards in the future and also for encouraging convergence to take place with the similar initiative currently being taken by the President’s Working Group in the US.
Members of the HFWG will initially act as interim trustees of the new HFSB and Large as interim chairman until permanent trustees are appointed.
Christopher Fawcett, chairman of The Alternative Investment Management Association (AIMA), will become a trustee of the HFSB. AIMA welcomes the report on industry standards and will have a key role developing aspects of the recommendations included in the report and in acting as a channel for guidance for the industry as well as consultations on future changes.
“This Report is a substantial achievement by this group of leading managers particularly given the time frame and the market conditions,” says Andrew Baker, deputy chief executive of AIMA. “We believe this initiative is the right approach for the hedge fund industry. HFWG’s endorsement of AIMA’s leadership and its substantial body of work in industry practices is welcomed and we are very much looking forward to working with the HFSB and the rest of the industry to oversee convergence of standards.”