EUROPE: Post Madoff-Hedge fund group proposes tighter rules

Wednesday July 1 2009

The Hedge Fund Standards Board (HFSB), a European Hedge Fund industry group has unveiled its plan to tighten disclosure and governance rules.

The proposals come in the wake of the credit crisis and are designed to prevent Madoff style schemes from surfacing in the hedge fund industry.

The HFSB has proposed changes to its standards on fund administration and redemptions. The proposals are subject to consultation with the industry. The changes will involve introducing new standards requiring fund governing bodies to appoint an independent third party to administer the fund, prepare accounting records and carry out NAV calculations as well as having an independent custodian.

The proposed changes regarding redemptions would place more onerous disclosure requirements on managers regarding possible restrictions on withdrawals.

Antonio Borges, Chairman of the HFSB, said:

“The HFSB standards would already make it very difficult for a Madoff-type scandal to occur but we believe it is right to raise the bar higher in the light of recent events.

“These new standards would help to safeguard investors ` assets and also lead to improvements in the redemption regime for hedge funds.”

Separately NewSmith Asset Management LLP, IKOS, Reech AIM Partners and Rose & Sky Investments are among 12 new managers who become signatories to the standards, bringing the total to 56 hedge fund managers.

The Hedge Funds Standards Board which has 56 hedge fund managers as members, sets a closely overseen industry code which is binding on its members.

Click on the above link to download the proposals.