AIMA Responds To FSA 2006 Risk Outlook Paper

by Carla Johnson, Investors Offshore.com

02 February 2006

The Alternative Investment Management Association has welcomed Financial Services Authority’s comments on the hedge fund industry, which raised concerns over the increasing use by hedge funds of illiquid assets and in-house administration.

In its annual Financial Risk Outlook paper, published last week, the FSA noted that while the risk posed by hedge funds to the overall stability of the financial system is low, their growing holdings of illiquid assets may nevertheless present a danger that markets could be destabilised at a time of future crisis

The FSA further warned that this could contribute to increased volatility in times of an economic shock or other events causing panic in the markets.

In response, AIMA, a global hedge fund trade association, noted that the FSA's paper highlights a number of "significant hedge fund industry issues," such as valuation practices and asset pricing.

As a result, AIMA is now planning to commence the "second phase" of its work in this area, and plans to collaborate with key industry practitioners, including managers and leading administrative and pricing bodies worldwide.

AIMA also acknowledged the FSA’s call for the industry’s use of third party administration and price providers, but said that this has already become an increasing part of normal industry practice.

Commenting on the FSA paper, Florence Lombard, Executive Director of AIMA, observed that: “The global hedge fund industry is constantly seeking to review and improve its practices. This is clearly evidenced by the work being carried out by AIMA and its members in the areas of asset pricing and fund valuation.”

She added that: “AIMA’s stated objective is to have an open dialogue and work closely with the FSA, and, all other global Regulators."

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