Hedge body backs formal disclosure to regulators

Date: Tuesday, February 24, 2009
Author: Laurence Fletcher, UK.Reuters.com

A hedge fund body has thrown its weight behind regular disclosure of large holdings and risks to regulators, as calls grow for greater scrutiny of the industry.

The Alternative Investment Management Association (AIMA), said on Tuesday it supported regulators being able to get information from large hedge funds to build up a regular picture of systemically significant holdings and risk exposure.

The move by AIMA, which represents more than 75 percent of hedge fund assets worldwide, comes with the industry under pressure for greater regulation and the Hedge Fund Standards Board (HFSB) facing criticism for the low number of funds signed up to its voluntary standards on governance and disclosure.

On Monday, European Central Bank President Jean-Claude Trichet said the current crisis was a loud and clear call for extending regulation and oversight to all systemically important institutions -- notably hedge funds and credit rating agencies.

AIMA chief executive Andrew Baker told Reuters the process, probably conducted quarterly, would be more formal than an arrangement Britain's Financial Services Authority (FSA) has with larger hedge funds, where it gets information on demand.

"We'd like to be at the table and suggest what it (the regulatory framework) looks like," he said. "The international agenda is starting to gallop away... We can see which way the wind is blowing and we want to exercise leadership." At last month's parliamentary Treasury Select Committee, Marshall Wace chairman Paul Marshall said the industry could move to a more formal process of aggregating data through prime brokers, although AIMA's proposal on Tuesday is for a more direct means of gathering information. Regulators have been on alert since the fall of Long Term Capital Management in 1998 over the possibility that another major fund could collapse and trigger a market crisis. AIMA's proposals include disclosing aggregate short positions to national regulators worldwide.

It also supports new policies to reduce settlement failure, a global manager supervision model based on the FSA's and unified global standards for the hedge fund industry based on the numerous industry standards that have already been proposed by groups such as AIMA, the HFSB and the President's Working Group in the United States.

Baker also said he was "anxious to see more details" about reports Britain had agreed to calls by other European leaders for the direct regulation of hedge funds, and was keen to find out whether this applied to funds or to fund managers.