Transparency and hedge funds

The "great and the good" in the UK hedge fund world, have decided that the political and regulatory pressure is getting too great and it is time that the veil of mystery is lifted. Not too much (probably) but just enough to satisfy stakeholders and regulators.

The Hedge Fund Working Group has come out with a report and recommendations. Interestingly this body currently does not appear to have a web site, at least a search on Google did not turn one up. However the Wall Street Journal has a copy of the report embedded in its coverage of the report.

Key recommendations of the initial report suggest that there are four areas of disclosure which need to be addressed:

Investment policy, commercial policy, performance measurement and disclosure to lenders. The report looks set to also provide us with a good insight into how hedge funds operate.

There is no doubt a thread runs from the subprime crisis to this Report even though this was set up over six months ago. Regulators and bankers are concerned about understanding better the location of risk with more sophisticated financial products. There is also political pressure growing in Europe in particular Germany at the role of hedge funds in takeovers.

It is interesting to see a survey in 2003 of US hedge funds which suggested that transparency only where it did not impact on the proprietary nature of the fund was necessary. Those days are long gone. Greater disclosure, if the markets are operating efficiently, will result in reduced profitability for the sector, but that is a process which all markets go through in their development.

Other links:
US regulation

US financial blog

Germany and hedge fund concerns