On January 22, the Hedge Fund Working Group (HFWG) published its final report containing best practice standards for hedge fund managers following consultation with the hedge fund industry and interested parties. The HFWG published its initial consultation paper in October 2007 and received more than 75 written responses, as described in the October 12, 2007 edition of Corporate and Financial Weekly Digest.
The final report included voluntary standards that seek to address five key areas: disclosure, valuation, risk, the governance of funds, and hedge funds' conduct as shareholders.
The report also included recommendations for hedge fund managers to adopt in order to manage potential and actual conflicts of interest with the interests of investors which include adopting an independent process for valuing portfolios and implementing robust governance of funds. The report recommended enhanced disclosure for investors and the implementation of comprehensive risk management procedures. A proposed standard relating to the disclosure of positions held via contracts for differences (CFDs) is awaiting the outcome of a consultation by the UK Financial Services Authority into CFDs.
Compliance with the voluntary hedge fund standards will be on a “comply or explain” basis.
A new Hedge Fund Standards Board (HFSB) will be set up to oversee the new standards. Existing members of the HFWG will initially act as interim trustees of the HFSB and Sir Andrew Large will act as HFSB’s interim chairman until permanent trustees are appointed.
Hedge fund managers are now being invited to become signatories to the new standards. Further details are provided on HSFB’s website, www.hfsb.org.
The HFWG, comprising 14 leading hedge fund managers based mainly in London, was set up in July 2007 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.