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AIMA to Publish Valuations Guide

Date: Thursday, March 8, 2007
Author: Bill McIntosh, HedgeWorld

LONDON (HedgeWorld.com)—The Alternative Investment Management Association is to publish its Guide to Sound Practices on Hedge Fund Valuation around March 20 in a bid to help managers develop clear policies in relation to the valuation process.

AIMA's publication of the guide coincides with a call by Anthony Ryan, assistant secretary of the Treasury for financial markets in the United States, that fund valuations need to meet sound industry practices and form part of each fund's risk management process. In a speech to the World Hedge Fund Forum, Mr. Ryan reiterated recommendations by a presidential group about guarding markets from systemic risk through market discipline and regulation. He added that regulators must monitor the over-the-counter derivatives market "and revise their policies and associated guidance, as appropriate."

Commenting on the assistant secretary's comments, AIMA director Emma Mugridge said: "Mr. Ryan has touched on a vital topic of interest to the whole hedge fund industry. Valuation risk is recognized by hedge fund managers. For the benefit of the funds as well as their investors, it is important that hedge funds employ sound valuation practices."

AIMA's new guide on valuation builds on the original study released in 2005. Since then, valuation techniques have become more sophisticated and there is a need to add detail on harder-to-value instruments. What's more, the regulatory backdrop to the hedge fund industry has changed substantially with much more emphasis now being put on corporate governance.

In particular, U.S. funds and their managers have come under pressure to adopt a more rigorous approach to valuation and administration procedures. Though regulators in the United States have, by and large, resisted calls for a new round of hedge fund regulation, Treasury officials, including Mr. Ryan, have warned managers to devote sufficient resources to their funds' valuation and risk management systems in order to guard against the investment risks facing hedge funds.