October 22, 2007
As European Hedge Funds Look to Self-Police, Best Practices in the U.S. Likely
Hedge funds in Europe have just proposed that they self-police, in an attempt to ward off regulation. They are offering to volunteer information about their holdings, risk management, governance and valuation techniques.
This makes it all the more likely that the same will occur here in the U.S., where the President's Working Group on Financial Markets recently announced it will form two private-sector groups to develop best practices for the hedge fund industry. One of the groups will focus on hedge fund managers and the other, on investors.
As we've said before, while best practices fall far short of requiring hedge funds to register with the Securities and Exchange Commission, they're at least a step in the right direction that will benefit both investors and the markets.
In Europe, the suggestions are coming out of the Hedge Fund Working Group, comprised of 14 leading hedge fund companies, including Man Group.
"Anytime a group of industry leaders steps up and takes on responsibility to help advance best practices, it's of service and benefit to the marketplace," said Eric Mindich, chairman of the Working Group and head of hedge fund Eton Park Capital Management.
It is "pretty difficult to coerce" hedge funds to do anything, said Man Group Chairman Stanley Fink, but if some funds begin to sign up for the best practices and investors begin to demand greater transparency, the movement might gain some traction.
But some politicians are not moved by the development. Poul Nyrup Rasmussen, president of the European Socialist party at the European Union Parliament, said, "Voluntary standards are not enough. What we need now is for regulators and policy makers to independently assess the regulation of hedge funds." Also, the Group of Eight nations has been pushing for more disclosure of hedge fund holdings as well as a ratings system, like that used for debt.
We disagree. Given hedge funds' overwhelming success in fending off regulation, we believe that these developments are, indeed, significant and very welcome.
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