Hedge fund managers shy away from signing compliance code

Date: Monday, June 9, 2008
Author: Simon Evans

Hedge funds have given a voluntary code for the industry a collective thumbs-down – not a single firm has signed up to the compliance standards since they were launched in January.

Nearly five months ago the Hedge Fund Working Group (HFWG) published a raft of recommendations for the sector that were intended to raise governance levels across the traditionally secretive sphere. But a spokesman confirmed last week that no hedge funds had signed up to abide by the proposals beyond the original 14 signatories, including Man Group, Brevan Howard, Och-Ziff Capital Management and CQS.

An HFWG spokesman said the body's priority was the appointment of a permanent chair, adding that it was speaking to a number of groups that could possibly sign up to the standards.

At the publication of the guidelines in January, Sir Andrew Large, chairman of the body, said: "Now it is up to investors to help take this forward. This is a voluntary, market-led initiative based on disclosure. It is investors who can provide the market discipline to ensure these standards are widely adopted."

In April a survey by the accountants KPMG revealed that eight out of 10 pension funds favour investing with a hedge fund manager that has complied with the 28 principles of the standards set out by the HFWG. More than 50 per cent of funds surveyed said they would require hedge fund managers to comply with the standards within three years.

News of the response to the voluntary code comes as the European Parliament assesses proposals to toughen up legislation linked to the industry. The former Danish prime minister, Poult Nyrup Rasmussen, is leading a group of MEPs calling for greater openness and scrutiny of hedge funds and private equity groups.

Last year, following a blitz of criticism led by trade unions, Britain's private equity industry agreed to implement a new code of practice which has been met with a largely positive response by buyout groups. The so-called Walker Code has prompted leading private equity houses such as Permira, Apax and Terra Firma to produce detailed annual reports for the first time.