British Hedge Fund Group Suggest Best Practices

Oct 11 2007 | 7:47am ET

Hedge funds should improve transparency and risk management, a British working group that includes top hedge fund executives has recommended.

The initiative, designed to become the basis of a voluntary code of conduct for hedge fund managers, specifically calls for making more information about hedge fund firms public and improving disclosures to banks and clients.

The group, which is headed by former Bank of England deputy governor and current Marshall Wace hedge fund chairman Andrew Large and includes 14 top executives, is calling on hedge funds to better evaluate how they value assets, improve efforts to inform clients about illiquid holdings, and disclose all conflicts of interest in the valuation process.

The group advises that hedge funds should not vote with borrowed shares, or where they have no underlying economic interest in a company, and they should improve risk management to “cope with unexpected events and stressed.” It also calls on regulators to require all investors to disclose derivative holdings.

The working group includes representatives from Cheyne Capital Management, Gartmore, GLG Partners, Man Group and Och-Ziff Capital Management.

“Disclosure gives investors and stakeholders the information they need to make better-informed decisions,” Large said. “We make no pretense in reinventing the wheel, and most hedge funds are already following these best practices, but there will be a leveling up to the highest standards.”

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