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Aima welcomes Financial Stability Forum hedge fund recommendations

The Alternative Investment Management Association has warmly welcomed the Financial Stability Forum's report on potential financial system risks relating to hedge funds and its recommendations on the ongoing supervision of hedge funds and their counterparties.
The FSF report, published last weekend, recognises the contribution hedge funds have made to financial innovation and market liquidity, but notes heightened risk measurement, valuation and operational challenges for market participants.

The FSF's five recommendations are:

  • Supervisors should act so that core intermediaries continue to strengthen their counterparty risk management practices.
  • Supervisors should work with core intermediaries to further improve their robustness to the potential erosion of market liquidity.
  • Supervisors should explore and evaluate the extent to which developing more systematic and consistent data on core intermediaries' consolidated counterparty exposures to hedge funds would be an effective complement to existing supervisory efforts.
  • Counterparties and investors should act to strengthen the effectiveness of market discipline, including by obtaining accurate and timely portfolio valuations and risk information.
  • The global hedge fund industry should review and enhance existing sound practice benchmarks for hedge fund managers in the light of expectations for improved practices set out by the official and private sectors.

Aima says it continues to support increased disclosure of information between hedge funds, their counterparties and, in turn, between counterparties and regulators. It also agrees that greater co-operation between regulators would be a welcome step toward increased market discipline and more efficient global supervision of all financial markets.

The organisation has also welcomed the comments last week from Ben Bernanke, chairman US Federal Reserve, encouraging the move toward principles-based regulation, as promoted by the UK's Financial Services Authority, which Aima says is widely viewed as the leading hedge fund regulator worldwide.

Says executive director Florence Lombard: 'Aima fully supports the FSF's recommendations that the global hedge fund industry should review and enhance existing sound practices. Aima has been striving for many years now to provide hedge funds, their investors and regulators with sound practices, and is committed to working together with its members and the relevant regulatory authorities to provide additional guidance where necessary.'

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