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Man eyes switch to independent valuation-sources

Date: Wednesday, May 20, 2009
Author: Martin de Sa'Pinto and Laurence Fletcher, Reuters.com

Man Group (EMG.L), the world's largest listed hedge fund firm, is likely to extend the independent valuation of its flagship AHL strategy to calm investors spooked by Madoff, sources familiar with the matter said.

AHL, a $25 billion family of managed futures funds which bet on trends in global futures markets, currently uses a mixture of internal and external administrators to value its constituent funds, which tend to be in liquid and easier-to-value markets.

However, with investors more focused than ever on independent administration in the wake of the fraud by U.S. financier Bernard Madoff, Man is ready to embrace a greater balance of third party input.

"Man AHL are open to change. They're prepared to move to more external valuation based on more investor demand," one of the sources said.

Man Group declined to comment.

There are 28 funds in the AHL family, according to information on the Man Investments website.

Valuations are carried out by Man Valuation Services Ltd and by external firms including Citco and Citi Hedge Fund Services, which is administrator for the 1.5 billion pound diversified futures fund. A spokesman could not confirm which funds or how many funds were externally valued at present.

In light of Madoff's $65 billion fraud, which went undetected for so long because functions such as net asset value calculations were conducted internally, many investors are threatening to shun hedge funds which do not use third parties to verify positions, valuations and cash balances.

Earlier this year large hedge fund investor Union Bancaire Privee, which lost heavily in the Madoff affair, said it would pull out of funds that did not have an independent administrator.

The Financial Times has reported that a number of large formerly self-administered funds, including D.E. Shaw and Millennium Management, had appointed independent third party administrators. (Editing by Elaine Hardcastle)