London- and Geneva-based hedge fund investment adviser and consultant Laven Partners is calling for the adoption of a standardised hedge fund valuation agreement in order to increase inves
London- and Geneva-based hedge fund investment adviser and consultant Laven Partners is calling for the adoption of a standardised hedge fund valuation agreement in order to increase investor confidence, protect the industry’s reputation and avoid political interference.
Organisations including Aima, the Hedge Fund Working Group and this week the President’s Working Group on Financial Markets in the US have introduced principles to address the problems surrounding hedge fund valuation, but Laven argues that so far these are not having the required impact and need to be expanded to include practical solutions.
The firm believes industry practitioners should establish a binding master agreement, clearly setting out a reliable approach to asset valuation, and introduce legal liability for managers and administrators.
Most agreements between administrators and hedge funds, Laven says, currently leave neither party accountable for the accuracy of valuations. There is a conflict of interest with hard to value assets as it is often an advantage to managers and administrators to value assets up rather than down, as their remuneration relates to assets under management.
The firm says a master agreement should enforce comprehensive, documented policies and procedures for the valuation of all financial instruments held or employed by a hedge fund, an appropriate level of independent review of individual values, in particular of any valuation that is influenced by the hedge fund manager, and the transparency of arrangements for the valuation of hedge fund assets to investors.
‘The adoption of a publicly available standard agreement will improve transparency and boost investor confidence,’ says Jérôme de Lavenère Lussan, managing partner at Laven Partners. ‘A proactive, open approach will show visible commitment from the industry to tackle one of its biggest problems, while maintaining its independence.’
‘Recent hedge fund collapses have left investors seriously concerned about the reliability of hedge fund asset valuations. If these issues are not remedied, it puts the reputation of the industry at risk, leaving it open to political interference. We believe the industry should take a proactive approach to addressing this problem, and that it can successfully self-regulate.
Laven Partners is an investment management group offering consultancy services, including fund structuring, tax, legal and compliance, as well as distribution and investment advisory services.
