January 2008 Hedge Fund Standards: Final Report 2020. 2. 10.آ  January 2008 Hedge Fund Standards:...

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Transcript of January 2008 Hedge Fund Standards: Final Report 2020. 2. 10.آ  January 2008 Hedge Fund Standards:...

  • January 2008

    Hedge Fund Standards: Final Report

    HFWG Hedge Fund Working Group

  • Contents 1. Foreword ....................................................................................................................... 2 2. Executive summary....................................................................................................... 5 3. Overall introduction ...................................................................................................... 8

    3.1. The nature of this Report ......................................................................................8 3.2. Why are we publishing this report? ......................................................................8 3.3. The consultation and the Standards ......................................................................8 3.4. One stage in a dynamic process............................................................................8 3.5. An industry led exercise in market discipline.......................................................9 3.6. Achieving conformity with the Standards ............................................................9 3.7. Regulatory status.................................................................................................10

    4. Issues affecting hedge funds ....................................................................................... 11 4.1. Hedge funds and general perceptions of them....................................................11 4.2. Specific hedge fund issues..................................................................................13 4.3. Applicability of the Standards to particular types of management activity........14 4.4. Applicability to smaller managers ......................................................................15

    5. The consultation.......................................................................................................... 16 5.1. Support for the Standards ...................................................................................16 5.2. Keeping the Standards up to date: defining the process .....................................17 5.3. Terminology and definitions...............................................................................17

    6. Consultation feedback summary and best practice Standards .................................... 18 6.1. Smaller manager perspective ..............................................................................18 6.2. Disclosure ...........................................................................................................19

    6.2.1. Investment policy and risk disclosure .....................................................19 6.2.2. Commercial terms disclosure ..................................................................20 6.2.3. Disclosure to lenders/prime brokers/dealers ...........................................21

    6.3. Valuation.............................................................................................................21 6.3.1. Segregation of the valuation and the portfolio management function ....21 6.3.2. Segregation of duties ...............................................................................22

    6.4. Risk Management ...............................................................................................22 6.4.1. Risk Framework ......................................................................................22 6.4.2. Portfolio risk............................................................................................22 6.4.3. Operational risk .......................................................................................23 6.4.4. Outsourcing risk ......................................................................................23 6.4.5. Fund Governance.....................................................................................24

    6.5. Shareholder Conduct (including activism) .........................................................25 6.5.1. Prevention of market abuse .....................................................................25 6.5.2. Proxy voting of stock owned...................................................................25 6.5.3. Disclosure of derivative positions ...........................................................26

  • 6.5.4. Voting of borrowed stock........................................................................26 7. Becoming a signatory ................................................................................................. 27

    7.1. Publicising a comply or explain decision ...........................................................27 7.2. Signing up...........................................................................................................27 7.3. Comply or explain ..............................................................................................28 7.4. Market discipline and conformity.......................................................................28 7.5. Regulatory and legal status of the Standards ......................................................29

    7.5.1. The regulatory status of the Standards ....................................................29 7.5.2. The risks of not having the Standards .....................................................30 7.5.3. The Standards and legal claims ...............................................................31 7.5.4. The status of the Standards in the US and jurisdictions other than

    England and Wales..................................................................................31 8. The Hedge Fund Standards Board .............................................................................. 32

    8.1. The nature of HFSB............................................................................................32 8.2. The timetable for setting up HFSB.....................................................................32 8.3. The mandate of the Board of Trustees................................................................32 8.4. The profile of the Trustees..................................................................................33

    9. The global dimension.................................................................................................. 35 9.1. Encouraging global convergence........................................................................35 9.2. Relevance for other jurisdictions ........................................................................35 9.3. The US situation .................................................................................................36 9.4. The longer term...................................................................................................36 9.5. Financial stability................................................................................................36

    10. Relationship with other bodies.................................................................................... 38 10.1. The Role of AIMA..............................................................................................38 10.2. Sector information ..............................................................................................39

    10.2.1. Information about the sector....................................................................39 10.2.2. Information on individual firms and financial promotion.......................39

    10.3. Education ............................................................................................................40 10.4. Other materials and relationship with HFWG’s Standards ................................40

    11. The HFSB Standards................................................................................................... 42 Appendix A. Members of the Hedge Fund Working Group.........................................99 Appendix B. FSA Principles.......................................................................................100 Appendix C. Signatory Pack.......................................................................................101 Appendix D. Regulatory and legal status of the Standards.........................................118 Appendix E. Leverage ................................................................................................125 Appendix F. Areas of concern from a smaller manager perspective .........................126 Appendix G. Illustration of typical hedge fund structure ...........................................128 Appendix H. Financial stability dimension.................................................................129 Appendix I. Consultation questions...........................................................................131 Appendix J. Examples of functions often covered by service level agreements .......134

  • Appendix K. HFSB Interim Trustees..........................................................................136 Appendix L. Acknowledgements ...............................................................................137 How to read this report The Hedge Fund Working Group (“HFWG”) Final Report (the "Report") is a package of materials which consists of:

    This Report, which is available in hard copy and on the website, containing background to the exercise, a summary of the consultation feedback, the revised best practice standards for hedge funds (the "Standards"), and the way forward (such as signing up to the Standards)

    Also on the website (http://www.hfsb.org) are: o Accompanying the report: The consultation questions, consultation

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