AIMA`s yearly look at hedge funds

Date: Monday, December 11, 2006

AIMA, the global trade association for hedge funds assesses the highs and lows of 2006 and looks forward to 2007. With 2007 nearly upon us, AIMA highlights the events of 2006 and considers what next year holds in store for the hedge fund industry.

Important events in 2006 included:

  • The rapid growth in the number of hedge funds and ancillary services
  • MiFID starts to bite
  • Regulators move to principles based regulations - Guidance note on side letters issued, more to follow!
  • US Securities and Exchange Commission (SEC) hedge fund registration rules overturned – next?
  • Major cash inflows stimulated by institutional money – AUM 2 trillion?
  • Amaranth collapses without shockwaves.

In 2007 we expect to see:

  • MiFID, the sequel – to meet EC deadlines, Member States will have had to make the rules which transpose MiFID’s requirements into their national law by the end of January 2007. These rules are to be fully implemented and are to take effect on 1st November 2007. European fund managers will have to factor in the costs of compliance, both in terms of finance and resources.
  • More regulation but from whom? – Regulators likely to pay further attention to the industry include the UK’s FSA, SEC and the EC. Other national regulators may also follow suit such as the AMF in the Netherlands. Germany has again tabled hedge funds at the next G8 summit, which it hosts as well as holding the EU presidency for the first six months.
  • Further growth in the institutional markets – there continues to be a positive in-flow of capital from institutions that focus on managing risk and return but which also focus on high levels of Corporate Governance that hedge funds are now progressively adopting.
  • More details on asset pricing and greater transparency – AIMA is introducing the next stage of its asset pricing work early next year. Not only will this establish new industry sound practices but will add yet more ’transparency’ to hedge fund pricing operations.

Commenting on the prospects for 2007, Florence Lombard, Executive Director of AIMA said, “Despite inevitable challenges, 2007 will be an exciting year for hedge funds as they confirm their place at the top table with all other forms of asset management.

It will be business as usual, both for managers striving to meet the demands of their investors: providing performance and mitigating risk and for AIMA which will continue to work with regulators and other interested parties to enhance the regulatory environment for its members globally.”