Heal thyselves
Under the oversight of federal regulators, a committee of hedge fund managers issued a 65-page manifesto to the lightly regulated industry, calling on funds to employ “best practices” that include disclosing information to investors, similar to the reports publicly traded companies file with the Securities and Exchange Commission.
The asset manager’s committee of the President’s Working Group on Financial Markets also is requesting that hedge funds disclose the portion of assets they hold that are difficult for investors to value.
Operating largely free of regulatory scrutiny, hedge funds use mathematical algorithms and other esoteric techniques in an attempt to generate better returns than those produced by traditional investments for wealthy investors.
“Over the past three decades, the hedge fund industry has evolved from a niche business consisting primarily of single-strategy, single-geography firms serving high net worth individuals into an important participant in global markets, consisting primarily of global multistrategy firms serving a wide variety of institutional investors,” the group wrote in a preamble to the report. “With this growth comes increased responsibility. This report represents our acceptance of this responsibility by promoting strong practices that are commensurate with the increasingly important role of hedge funds in the financial markets.”
The authors asked hedge funds better police themselves via:
• improved disclosing of information to investors;
• improving how they determine the value of an investment;
• “stress testing” their portfolios to hedge risks;
• adding checks and balances to systems; and
• adopting a written code of ethics that addresses conflicts of interest.
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