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The Managed Funds Association, the US industry body representing hedge fund managers, has recommended that the industry adopt heightened standards of excellence embodied in the latest version of its guide to Sound Practices for Hedge Fund Managers.

According to MFA chairman Eric Vincent, the revised Sound Practices publication represent the hedge fund industry's response to a call for improved market discipline and enhanced vigilance from President's Working Group on Financial Markets.

'As hedge funds continue to be important liquidity providers and dispersers of risk, industry self-awareness is crucial and will contribute to market soundness and investor protection,' Vincent says. 'MFA recognises its responsibility to advocate sound business practices and asks all industry participants to adopt the expanded policies and procedures set forth in these recommendations.'

Originally published in 2000, Sound Practices is in its fourth edition. 'The updated guidance is the cornerstone of the association's initiative to collaborate with domestic and international organisations with the goal setting up uniform global principles and guidance,' says MFA president John Gaine.

Sound Practices has been shared with the President's Working Group's private sector asset management committee, which is also developing industry best practices. The majority of participants on the asset management committee are sustaining members of the MFA.

Through the publication, the association seeks to strengthen business practices in the hedge fund industry through a strong framework of internal policies and practices, encourage assessment of investment recommendations and enhance market discipline.

The revised edition includes updated and expanded guidance on valuation, risk management and responsibilities to investors. It also introduces the MFA's first model due diligence questionnaire designed for all types of investors, including high net worth individuals, pension fund managers and non-profit organisations.

The publication also offers updated guidance on anti-money-laundering procedures and a new transactional practice section, including policies and procedures related to managing potential and actual conflicts of interest, safeguarding confidential information, establishing and managing counterparty relationships and achieving best execution.

The MFA says it has shared earlier drafts of the revised Sound Practices with the G-7 finance ministers and deputies, and has worked with the International Organisation of Securities Commissions in the development of international portfolio valuation principles and the identification of issues affecting funds of hedge funds.

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