Hedge Funds Face Pressure To Reveal Operational Risks

Oct 6 2008 | 1:12pm ET

Investor and regulatory pressure will cause the hedge fund industry to be more transparent about its operational controls with investors, according to a new PricewaterhouseCoopers report.

"Market volatility will cause investors to ask whether they have enough knowledge and comfort over the operational risks and controls at the hedge fund manager complex responsible for their investment,” said Graham Phillips, European hedge fund practice leader at PricewaterhouseCoopers.

“This does not mean that the hedge fund manager has to make public the intricacies of the fund’s investment strategies, but it does mean that the operational control environment must be sufficiently robust to withstand proper scrutiny.”

Robert Mellor, U.K. financial services tax leader at PwC, added that recent regulation, U.S. congressional enquiries and pressure to adopt governance standards, have all increasingly challenged investors to consider and understand the tax issues associated with their underlying investment.

“Funds in many territories are voluntarily adapting to the standards of FIN48, one of the most significant developments on the tax scene,” he said.

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