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Hedge Funds Look to the Future (October 15, 2007)

Location: New York
Author: Lenny Broytman
Date: Monday, October 15, 2007

In the never-ending quest to increase transparency and improve other conditions within the hedge fund sector in the UK, some of London's funds have begun a campaign for change with the aid of a new agenda.

According to, the 14 funds have been doing their best to fend off escalating pressure from the Group of Eight leading industrial nations and financial watchdogs with a new plan designed to "comply or explain", meaning that they will agree to either meet certain requirements or provide reasons for failing to do so. Most of the hedge fund managers participating in the initiative are AIMA members.

The plan is being orchestrated by the London group, who manages a reported $180bn in assets (an estimated figure that accounts for about 10 percent of the global industry total).

If it succeeds, the plan will not only provide the public with a greater degree of transparency, it will also implement three main standards designed to protect the interests of investors. Some of the group's planned revisions for the hedge fund sector will include new methods for valuing complex securities as well as addressing liquidity risk and policies for conflicts that take place between investors and managers.

The group is being led by Sir Andrew Large, the former deputy governor of the Bank of England who has also called for new regulation regarding just how firms identify hedge funds as well as voting blocs in which funds have no economic interest.

The article also dove into "empty voting", a practice that has garnered plenty of controversy for its activities associated with companies selling on the economic interest in a share stake but retaining their vote in the long run. This in turn, allows the company to profit on a related bet on another investment. This has been questioned in both the US as well as the UK and is one of the main items on the group's forthcoming agenda.

This committee will reconvene in mid-December in an effort to implement change and satisfy pressure from Germany as well as others.

"I hope it will take the pressure off," said Paul Marshall, chairman of Marshall Wace, the hedge fund that organised the London working group.

"I would certainly hope that it will help to secure a stronger financial system," said Sir Andrew, chairman of Marshall Wace's listed hedge fund MW Tops. He also noted that hedge funds were not to blame for the summer's international financial woes.

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