US Presidential Working Group Examines Role Of Hedge Funds

by Glen Shapiro, LawAndTax-News.com, New York

26 September 2007

The chairs and members for two private sector committees have been selected by the President's Working Group on Financial Markets to discuss issues surrounding the rapidly increasing influence of private pools of capital, namely hedge funds, on US financial markets.

The committees, one comprised of investors and the other comprised of asset managers, have been tasked with assessing and fostering a private sector dialogue on issues of significance to their industry and the market, such as investor protection, market discipline and systemic risk

Russell Read, Chief Investment Officer of the California Public Employees Retirement System, will serve as the chair of the Investors' Committee. Eric Mindich, CEO of Eton Park Capital Management, will serve as the chair of the Asset Managers' Committee. The Investors' Committee includes representatives from labor organizations, endowments, foundations, corporate and public pension funds, investment consultants, and non-US investors. The Asset Managers' Committee includes representatives from hedge fund managers representing many different strategies.

"These groups are drawn from among the industry's finest in their respective areas," explained Treasury Secretary and PWG Chairman, Henry Paulson. "The market will benefit if experienced participants develop and implement best practices."

The first task of the committees will be to develop best practices using the PWG's principles-based guidance released in February. This will culminate in the publication of a best practices document designed to enhance investor protection and increase systemic risk safeguards. The groups plan to make this available for public comment before it is finalized.

The principles published by the PWG in February seek to guide US financial regulators as they address public policy issues associated with the rapid growth of private investment pools. The principles address issues in four broad areas:

• Private Pools of Capital: maintain and enhance information, valuation, and risk management systems to provide market participants with accurate, sufficient, and timely information.
• Investors: consider the suitability of investments in a private pool in light of investment objectives, risk tolerances, and the principle of portfolio diversification.
• Counterparties and Creditors: commit sufficient resources to maintain and enhance risk management practices.
• Regulators and Supervisors: work together to communicate and use authority to ensure that supervisory expectations regarding counterparty risk management practices and market integrity are met.

"The President's Working Group believes that public policy toward private pools of capital should be governed by consistent principles that set out a uniform approach to specific policy objectives," Paulson commented upon the release of the guidance. "These principles demonstrate that US regulators and policymakers have a unified perspective and are committed to providing forward-leaning guidance for the industry and its participants. These guidelines should serve as a foundation to enhance vigilance and market discipline further, which will strengthen investor protection and guard against systemic risk. We will continue to monitor developments in this ever-evolving market with these principles in mind."

The PWG was formed in 1988 to further the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of financial markets and maintaining investor confidence. It is composed of the chairmen of the Federal Reserve Board, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.

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