Thursday, 5 May 2016
Last updated 11 min ago
Aug 4 2009 | 12:55pm ET
How does a hedge fund handle redemptions? The question has grown in importance as the economic crisis brought on a deluge of withdrawal requests, with unhappy parties now often seeking the answer in the courts.
But fear not! A year after the subprime mortgage market collapse set off the hedge fund slide, one self-regulatory body is promising best-practices guidelines for how to deal with an avalanche of investors who want out.
The Hedge Fund Standards Board has put out a “consultation paper” on how to best handle redemption requests.
The group’s “best practice assessment” offers a trio of hypotheses: redemption restrictions are OK, but liquid hedge funds should not use them, and a new fee that should be charged to investors who revoke their redemption notices.
Lest one think that these “practices” are only in the best interests of hedge fund managers, the HFSB falls back on that great buzzword for hedge fund regulation: transparency. The proposal suggests that hedge fund managers clearly spell out possible redemption restrictions in their prospectuses, and what circumstances might trigger them. The HFSB even offers up a handy flowchart to better explain the system to investors.
Interested parties have until Sept. 18 to comment on the HFSB proposal.