Hedge fund firms to consider voluntary standards

Date: Tuesday, June 19, 2007
Author: Laurence Fletcher, Reuters.com

LONDON (Reuters) - A group of leading hedge fund executives is to consider adopting voluntary standards for the fast-growing and much criticized industry.

The group, to be headed by Sir Andrew Large, former deputy governor of the Bank of England, will consult hedge fund managers, prime brokers, administrators and investors among others and present its findings in six months' time.

It will consider greater disclosure of the way hedge fund performance is measured, fees are charged and risk is managed.

The move comes at a time when the $2 trillion hedge fund industry is coming under pressure from some commentators and politicians who favor regulation or supervision and say risky trades could endanger the financial system.

"The industry recognizes it needs doing anyway. It's quite an important step as it's the first time a group of leading hedge fund managers has deliberately got together to look at gaps and improvements (in disclosure)," Large, former head of the Securities and Investments Board, the forerunner of regulatory body the Financial Services Authority, told Reuters.

"It's a recognition of the responsibilities they have as the industry matures and becomes mainstream ... The issue has been germinating for some time. (But) there has been an added impetus for the last four to five months."

The working group comprises 13 hedge fund managers, including Brevan Howard, Centaurus Capital, GLG, Gartmore and Man Group (EMG.L: Quote, Profile, Research), the world's largest listed hedge fund firm, while a number of other hedge fund firms are supporting it.

Large said the group, which also has the support of industry body the Alternative Investment Management Association (AIMA), will not become a voluntary regulator for the industry, however.

"There will be peer group pressure. If leading firms say they intend to comply or explain why not -- this has its own dynamic ... As best practice is articulated it will be seen to be common sense. A number of market-related processes will make sure it happens," Large said.

"It's not about divulging positions. It's about how do firms think about the way they manage risk, how they disclose the way fees are charged, and disclosure in the way performance is measured."