A British hedge fund group has proposed sharper standards for the industry, including a watchdog to oversee compliance with the new voluntary guidelines.
The Hedge Fund Working Group, which includes representatives from 14 of the U.K.’s top hedge fund managers headed by former Bank of England Deputy Governor Andrew Large, issued its final report today, which includes tougher standards for asset valuation. It implores hedge funds to use third-party valuations where possible; at a minimum, it stresses that valuation and portfolio management should be handled by separate people.
It also codifies best practices on disclosure, governance, risk and shareholder conduct. In particular, hedge funds should offer more information about the amount of leverage used.
Hedge funds signing up to the voluntary code will either promise to comply, or explain why they cannot.
The report also proposes a Hedge Fund Standards Board, which will promote the best practices code, to be funded by the industry. Large estimated that the board would need £500,000 per year, financed by participating hedge funds, likely on a sliding scale based on size. Fauchier Partners founder Christopher Fawcett, who is also chairman of the Alternative Investment Management Association, was named a founding trustee of the new group. Other trustees are expected to be named from the hedge fund industry.
The HFSB would not have any regulatory function, nor would it be empowered to punish hedge funds that contravene the voluntary standards.
Final Report from the Hedge Fund Working Group