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Hedge funds likely to get more transparent

Date: Sunday, February 18, 2007
Author: Daisy Maxey, Dow Jones Newswire

Investors are giving hedge funds' risk-management practices much more scrutiny than they did in the past, and hedge fund managers as a result are facing some difficult decisions in determining how much they want to reveal.

As more and more of these loosely regulated investment pools vie for institutional money, they are likely to be expected to reveal more, hedge fund experts said last week at the Managed Funds Association Network 2007 conference for the alternative investment industry.

The recent initial public offering of Fortress Investment Group LLC is likely to result in other hedge fund IPOs, which will mean more transparency that will, in turn, make institutional investors more comfortable, said Michael Balkin, chief investment officer at Magnetar Investment Management, the investment management arm of the hedge fund Magnetar Capital.

"Fortress is a real positive for the rest of the industry," he said. There is currently a convergence going on between private equity and hedge funds, as well as traditional asset managers, Balkin said. As they merge and more hedge funds start going public, it will give comfort to the institutional marketplace, he said.

Tracy Wills-Zapata, a managing director at alternative investment manager Campbell & Co., responsible for its institutional clients, said deciding how far to go in revealing information can be a delicate decision.

"If we share information with one client, we have to share it with all clients," she said. "There is definitely some difficulty in trying to determine where that fine line is" between sufficient disclosure versus full-position disclosure, she said.

John Roe, chief operating officer at Abrams Bison Investments, said that as long-term investors, when his firm files 13F forms, "we're basically opening our kimono." Hedge fund managers of portfolios of more than $100 million of public securities must periodically file 13F forms with the Securities and Exchange Commission listing their largest holdings.