The Hedge Fund Working Group (HFWG), representing leading hedge fund managers based mainly in the UK, has today published a consultation document that puts improved disclosure to investors at the heart of best practice standards for the industry.
The report addresses issues about financial stability raised by the G8 and Financial Stability Forum as well as other concerns about the hedge fund industry.
The new standards focus particularly on the areas of valuation, risk management, disclosure and fund governance. The working group has also recommended that hedge fund managers disclose more information about themselves on their websites and that more information about the industry is made available collectively to the wider public.
The best practice standards, which are framed within the context of FSA principles, are voluntary and would operate on a ‘comply or explain’ basis.
Sir Andrew Large, chairman of the HFWG, said: “This is a significant step in that it is the first time a group of leading hedge funds have come together to give real substance as to how they will comply with FSA principles.
“It shows that the industry recognises its responsibilities as a significant force in the financial system.
“The reason disclosure is at the core of this exercise is because it gives investors, lenders and other stakeholders the information they need to make better-informed decisions. Transparency leads to greater understanding and confidence.”
The main best practice standards in the consultation document include:- On valuation, managers should ensure that the methodology for valuing complex assets is robust and transparent, that the presence of illiquid and hard-to-value assets in the portfolio is disclosed as are any conflicts of interest in the valuation process.
- On risk management, managers should develop an approach to dealing comprehensively with risk, with particular emphasis on liquidity, so that they are able to cope with unexpected events and stresses.
- On fund governance, managers should ensure that adequate structures are in place to handle potential conflicts between managers and investors.
- On activism, it is recommended that regulators require all investors to disclose their interest in companies through holding derivatives such as CFDs; managers should also develop proxy voting policies and they should not vote where they have no underlying economic interest in a company.
The HFWG, which comprises 14 of the leading hedge fund managers, proposes setting up a board of trustees that would assume responsibility for the standards and for updating them in the future. It is hoped that the standards will be further developed over time in a global context.
Responses are now invited on the consultation document and the consultation period will run until 14th December 2007. The HFWG intends to issue its final report in January 2008.
In addition to the members of the HFWG other leading London-based hedge fund managers have agreed to support the setting up of this industry-led initiative. The initiative is also supported by the international trade body for the industry, the Alternative Investment Management Association (AIMA).
Hedge Fund Working Group Consultation Paper Part I
Hedge Fund Working Group Consultation Paper Part II
Background- The terms of reference of the working group were to explore a range of issues covering in particular valuation, disclosure of financial information and risk management.
- The working group will consult widely with interested parties in the industry, its investors and suppliers.
- The 14 members of the HFWG are :
- Brevan Howard - Nagi Kawkabani, Co-CEO
- Brummer & Partners- Klaus Jäntti, CEO
- Centaurus Capital - Bernard Oppetit, CEO
- Cheyne Capital - Stuart Fiertz, President
- CQS - Michael Hintze, CEO
- Gartmore - Jeffrey Meyer, CEO
- GLG - Manny Roman, co-CEO
- Lansdowne Partners - Paul Ruddock, CEO
- London Diversified - Rob Standing, Founding Partner
- Man Group - Stanley Fink, Deputy Chairman
- Marshall Wace - Paul Marshall, Chairman
- Och-Ziff Capital Management - Michael Cohen, Managing Partner, CIO of Europe
- RAB Capital - Michael Alen-Buckley, Chairman
- Sloane Robinson – George Robinson, Founding Partner
- London is the dominant centre for hedge fund management in Europe. According to EuroHedge, UK-based hedge fund managers had $361 billion of assets under management at end-2006. This represented nearly four-fifths of the $460 billion total managed in Europe.
- The other hedge fund managers that gave initial support to the process are:
- Aspect
- AXA Framlington
- Barclays Global Investors
- Blackrock
- Bluebay Asset Management
- Bourne Park Capital
- Carrousel
- Cazenove
- Concordia
- Egerton
- Henderson Global Investors
- Jupiter
- KBC Alternative Investment Management
- Langlade
- M&G
- Martin Currie
- Meditor
- NewSmith
- Odey
- Otus Capital Management
- Oxford Asset Management
- Peloton
- Plexus
- Polar Capital
- Polygon
- Rubicon
- Sabre
- Soc Gen Asset Management
- Sofaer Global Research (UK) Ltd
- Thames River
- TCI
- The D E Shaw Group
- Threadneedle
- TT International
SIR ANDREW LARGE
Andrew Large’s career has covered a wide range of senior positions in the world of finance, both within the private and public sectors. A former Deputy Governor of the Bank of England from 2002-2006 and Chairman of the precursor of the FSA, the Securities and Investments Board from 1992-1997, Andrew also served as deputy chairman of Barclays from 1998-2002 and on the management board of Swiss Bank Corporation from 1987-1989.
During his period at Barclays up until 2000, Andrew was also Chairman of Euroclear in Brussels, the global capital market’s leading international clearing and settlement entity. He also served on the Managing Director of the IMF’s Capital Markets Consultative Group between 1999-2002 and chaired a global study for the Group of 30 into the functioning of financial infrastructure in clearing and settlement.
Currently, Andrew is chairman of MW TOPS Ltd, a quoted hedge fund which invests in funds managed by Marshall Wace. He is also Chairman of the Board Risk Committee of Axis, Bermuda and a senior adviser to Oliver Wyman.
In the earlier part of his career, Andrew spent twenty years in investment banking, first with Orion Bank and then with Swiss Bank Corporation. He was the first non-Swiss to be appointed to the executive board of a major Swiss bank, taking responsibility from 1987-89 for the worldwide investment banking activities of SBC.
Andrew has a keen interest in education and is currently on the Board of INSEAD, Warden (Chairman) of Winchester College, and a Governor of Christ College, Brecon.