The secretive hedge fund world has made a big step towards increasing transparency and improving risk controls with plans for the world's first voluntary regime for industry conduct.
A group of London's biggest hedge funds has drawn up a broad agenda for change in a bid to fend off pressure from Germany for an industry clamp-down by the Group of Eight leading industrial nations and financial watchdogs.
Under the UK plan, which is out for consultation until mid-December, hedge funds would have to "comply or explain", ie agree to meet the standards or tell people why they were not meeting them.
Apart from increased transparency for the public through better disclosure of information about managers on their websites - many of which contain nothing except the corporate logo - the plan sets out three main standards to protect investors.
These are: disclosure of holdings of complex and hard-to-value securities, and the methods used to value them; clear risk management plans, including plans to address liquidity risk, ie the danger of running out of cash; and clear policies on dealing with conflicts between investors and managers.
The Hedge Fund Working Group, headed by Sir Andrew Large, also called for new rules to help identify hedge funds and others holding significant stakes via derivatives, and blocks on voting where funds have no economic interest.
