Most UK-based hedge funds support the industry’s best practice standards but remain uncommitted to signing up to them, according to a survey by UK-based consultancy and professional ser
Most UK-based hedge funds support the industry’s best practice standards but remain uncommitted to signing up to them, according to a survey by UK-based consultancy and professional services firm Kinetic Partners.
Kinetic Partners, which provides professional services to the asset management industry, polled more than 100 UK-based hedge funds on whether they planned to sign up to the standards overseen by the Hedge Fund Standards Board (HFSB).
It found that less than one in ten hedge funds said they will sign up to the standards, nearly one fifth said they will definitely not comply and two-thirds have not yet decided whether or not to comply with the standards.
Most of the hedge funds polled by Kinetic Partners managed assets in excess of USD200m, and collectively represented over half of the total hedge fund assets under management.
Most hedge funds were strongly supportive of the standards, however. More than 60% of the funds surveyed either agreed or strongly agreed with the idea of industry-led best practice standards, and the same percentage said they believed the standards are robust and will improve hedge fund transparency and accountability.
The industry standards were published in January 2008 by the Hedge Fund Working Group, backed by 10 leading hedge fund managers. They set out a recommended approach to issues including risk management, disclosure to investors, fund governance and valuation.
Hedge funds that said they would not comply, or had not decided whether or not to comply, cited the burden of further regulation and concerns that compliance would expose the fund to additional legal risk as the principal reasons for non-compliance.
Others said they were waiting for investors to demand compliance – none of the hedge funds surveyed by Kinetic Partners had been contacted by their investors on the subject of the standards.
Julian Korek, a member of Kinetic Partners, says: "It is essential that effective, appropriate self-regulation is applied to hedge funds. The global hedge fund industry faces a time of acute stress, characterised by fund closures, increased redemptions, liquidations and litigation, and there will be pressure on governments to regulate more heavily.
"There are sound arguments in favour of enhanced regulation – transparency, communication with investors and valuation policies all need to improve. But it would be far better if the industry itself took charge of raising standards in this area."
