INTERNATIONAL: IOSCO Consultation on Principles for Hedge Fund Valuation

Tuesday March 13 2007

The International Organization of Securities Commissions (IOSCO) has released for comments its nine Principles for the Valuation of Hedge Fund Portfolios. The Consultation Paper can be found at the above link. The closing date for comments is 21 June 2007.

The Principles emphasize the importance of clear written procedures which are consistently operated and regularly reviewed, and which provide for an appropriate degree of independence to deliver effective checks and controls.

The nine Principles are

*Comprehensive, documented policies and procedures should be established for the valuation of financial instruments held or employed by a hedge fund;

* The policies should identify the methodologies that will be used for valuing all of the financial instruments held or employed by the hedge fund;

* The financial instruments held or employed by hedge funds should be consistently valued according to the policies and procedures;

* The policies and procedures should be reviewed periodically to seek to ensure their continued appropriateness;

* The Governing Body should seek to ensure that an appropriately high level of independence is brought to bear in the application of the policies and procedures and whenever they are reviewed;

* The policies should seek to ensure that an appropriate level of independent review is undertaken of the individual values that are generated by the policies and procedures and in particular of any valuation that is influenced by the Manager

* A hedge fund’s policies and procedures should describe the process for handling and documenting price overrides, including the review of price overrides by an Independent Party

* The Governing Body should conduct initial and periodic due diligence on third parties that are appointed to perform valuation services; and

* The arrangements in place for the valuation of the hedge fund’s investment portfolio should be transparent to investors.