Funds could face renewed calls for transparency and better risk management What are the key regulatory issues facing hedge funds? There is a tendency for governments, regulatory authorities and international organisations to eschew calm consideration for knee-jerk reaction to any out-of-the-ordinary event. The subprime calamity, a near shutdown of market liquidity, the failure of Northern Rock in the UK and Bears Sterns in the US is collectively having just such an effect. The problem with this approach is that it tends to stop regulators and others pursuing a more logical approach to regulation and addressing the longer-term issues. Success and secrecy in equal measure has given hedge funds a mystique that is not altogether appropriate. At the same time, however, it is clear they cannot continue as they have, with scant regard to transparency and completely outside regulatory control. As the recent PricewaterhouseCoopers global survey (HFR, March 2008, page 7) showed, hedge funds are relatively complacent about their current regulatory environment. According to the survey, hedge funds were roughly divided about whether they thought the industry needed greater regulator scrutiny. Support for regulatory initiatives on guidelines on reporting to investors, formal disclosures to regulatory bodies and guidelines on valuation techniques as well as a code of ethics topped the list, roughly in line with the response by private equity funds. Funds are being urged to sign up to a voluntary best practice standards as advocated by the Hedge Funds Working Group report. So far the Hedge Fund Standards Board, the successor organisation, has 14 hedge funds signed, including some of the most prominent, such as Man Group, RAB Capital, Gartmore and others. Many believe this is the way forward, rather than legislation and regulation....
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