The International Organization of Securities Commissions (IOSCO) has published Elements of International Regulatory Standards on Funds of Hedge Funds Related Issues Based on Best Market Practices, which proposes standards aimed at addressing investor protection regulatory issues. The report sets forth proposals for funds of hedge funds’ managers in two areas: (a) the methods by which managers should manage liquidity risk, including considering (i) whether the fund of hedge funds’ level of liquidity is consistent with the underlying funds, (ii) the liquidity of the types of financial instruments held by the underlying funds, (iii) the conditions and disclosure of any limited redemption arrangements by the fund of hedge funds, and (iv) the existence of any side-letter arrangements entered into by the underlying funds; and (b) the due diligence process used by managers prior to and during investment, including (i) the due diligence elements to be monitored and analyzed, (ii) the procedures and structures funds of hedge funds’ managers should have in place to carry out a proper and robust due diligence, and (iii) the conditions for outsourcing of due diligence.

To view the standards click here.

See also the June 26 edition of Corporate and Financial Weekly Digest, discussing IOSCO’s previous report, Hedge Funds Oversight: Final Report.