On February 22, 2007, the President's Working Group on Financial Markets (the “PWG”) publicly released its "Agreement among PWG and U.S. Agency Principals on Principles and Guidelines regarding Private Pools of Capital" (the "Principles and Guidelines").

The Principles and Guidelines detail 10 guidelines and principles and state that "the current regulatory structure, which is also based on these principles, is working well." The Principles and Guidelines endorse a counterparty risk management approach to managing systemic risk, with an emphasis on best practices by both hedge funds and their financial counterparties.

Highlights from the Principles and Guidelines are set forth below.

1) Private pools of capital bring significant benefits and present challenges to market participants. Investors, creditors, counterparties, pool managers, and supervisors must beware of the challenges, including those related to some over-the-counter derivatives, and work to address them. Public policies that support market discipline, private industry awareness of risk, and prudent risk management systems are the best way of protecting investors and limiting systemic risk.

2) Systemic risk is most effectively addressed by the private sector with investor concerns addressed through a combination of market discipline and regulatory policies that limit direct investment to sophisticated investors.

3) Private pools of capital are appropriate for sophisticated investors.

4) Investors should obtain accurate and timely historical and ongoing material information in order to perform appropriate due diligence on a private pool.

5) Concerns about "retailization," where individual investors are exposed to investment risk via pension funds, funds of funds, or other forms of indirect investment, can be addressed through sound practices on behalf of the fiduciaries that manage such pension funds, funds of funds or other forms of indirect investment vehicles.

6) Market discipline by creditors, counterparties, and investors is the most effective mechanism for limiting systemic risk.

7) Key creditors and counterparties must commit resources and maintain appropriate policies, procedures, and protocols to define, implement, and continually enhance best risk management practices. This should include policies, procedures and protocols addressing margin, collateral, and other credit terms and aspects of counterparty risk management.

8) Investors should carefully evaluate the strategies and risk management capabilities of any private pool of capital in which they choose to invest to ensure that the pool's risk profile is compatible with their own appetite for risk. 9) Managers should have information, valuation, and risk management systems that meet sound industry practices and enable them to provide accurate information to creditors, counterparties and investors with appropriate frequency, breadth and detail.

10) Supervisors should clearly communicate their expectations regarding prudent management of counterparty credit exposures, including those to private pools of capital and other leveraged counterparties, which are increasingly utilizing complex instruments, including certain over-the-counter derivatives and structured securities such as collateralized debt obligations. Because key creditors and counterparties to pools are organized in various jurisdictions, international policy collaboration and coordination are essential.