Duo to draw up best practice for hedge funds

Date: Wednesday, September 26, 2007
Author: Anuj Gangahar, MSNBC.msn.com

Two of the highest profile figures in asset management were on Tuesday appointed to spearhead the drawing up of guidelines for best practices for hedge funds.

The appointments, by the president's working group on financial markets, are part of efforts by Hank Paulson, Treasury secretary, to formulate a private sector-led response to concerns about the activities of hedge funds and avoid potentially draconian regulations.

Russell Read, chief investment officer of Calpers, regarded as one of the most influential jobs in US capital markets, will chair a committee of investors, while Eric Mindich, the chief executive officer of hedge fund Eton Park, will chair an asset managers' committee.

The investors committee will include representatives from labour organisations, endowments, foundations, corporate and public pension funds and investment consultants.

Other members of the committees will include Daniel Och, head of Och Ziff Capital Management, William von Mueffling, the former star Lazard hedge fund manager who now runs Cantillon Capital, and James Chanos of Kynikos Associates.

The question of how best to regulate hedge funds has dogged US regulators for years.

A law requiring funds to register with the US Securities and Exchange Commission was thrown out by the courts, and politicians have debated various proposals as to the best ways to oversee the industry.

Mr Paulson launched a review of the US financial regulatory structure in June, and said the government would release a blueprint for its overhaul by early next year.

On Tuesday the president's working group was encouraging market participants "to move beyond the status quo" as they worked to strengthen market discipline.

Hedge funds have featured heavily during the recent market turmoil as many were accused of adding to volatility.

Anxiety among investors seems to centre on the lack of transparency of hedge funds' trading positions. Many hedge funds move in and out of positions extremely quickly, often using computer programmes and trading algorithms, making it difficult for investors to track their money.

Quantitative hedge funds were among the worst affected at the height of market volatility in August, although many have since recovered losses.