Hedge Fund Standards Board Welcomes PWG Proposals

by Robin Pilgrim, LawAndTax-News.com, London

17 April 2008

The Hedge Fund Standards Board (HFSB) has welcomed the reports on best practices for hedge fund managers and investors published earlier this week in the US by the President’s Working Group on Financial Markets.

Commenting on the PWG's report, Sir Andrew Large, chairman of the HFSB, stated that:

“There is much common ground with the best practice standards for managers we published earlier this year. Our fundamental aims are the same and we both share a similar approach to addressing issues such as valuation, risk management and disclosure."

“We also welcome the principles and practices set out by the Investors’ Committee since the commitment of investors is so important to enforcing best practice."

“The HFSB looks forward to working with our colleagues in the US on developing harmonisation of international practice.”

The HFSB is a company limited by guarantee, set up to monitor conformity to the hedge fund best practice standards.

It comprises 14 of the leading hedge funds, based mainly in London, and was established in 2007 in response to concerns about the industry, including over financial stability and systemic risk.

Large was responding to the reports recently released by two separate private-sector committees established by the PWG, which this week outlined sets of best practices for hedge fund investors and asset managers.

The best practices for the asset managers call on hedge funds to adopt comprehensive best practices in all aspects of their business, including the critical areas of disclosure, valuation of assets, risk management, business operations, compliance and conflicts of interest.

The best practices for investors include a Fiduciary's Guide and an Investor's Guide. The Fiduciary's Guide provides recommendations to individuals charged with evaluating the appropriateness of hedge funds as a component of an investment portfolio.

The Investor's Guide provides recommendations to those charged with executing and administering a hedge fund program once a hedge fund has been added to the investment portfolio.

Both best practices documents recommend innovative and far-reaching practices that exceed existing industry standards. The recommendations complement each other, by encouraging both types of market participants to hold the other more accountable.

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