Hedge funds offer to lift veil of secrecy

Some of the biggest fund managers in London are backing standards that call for them to provide more information to investors.

By Grace Wong, CNNMoney.com staff writer

LONDON (CNNMoney.com) -- Some of Britain's biggest hedge fund managers have introduced measures aimed at improving transparency of the industry, the latest move to ward off greater oversight of the booming business.

At the center of the plan are calls for greater disclosure to investors - from providing more information about the financial risks that fund managers take to the procedures they follow in valuing hard-to-value assets.

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The suggestions were put forth by the Hedge Fund Working Group, a group of 14 fund managers based mostly in London. Members include heavyweights like Och-Ziff Capital Management, Man Group and GLG Partners.

The proposals, which would apply to funds in Britain, are intended to shore up confidence in the sector, which has come under scrutiny for its secretive nature. By creating their own standards, hedge funds also aim to ward off more stringent regulation.

Growing concerns about the effects that hedge-fund problems can have on global financial markets have renewed a push for tighter controls worldwide.

The summer turmoil heightened concerns. In June, two Bear Stearns (Charts, Fortune 500) hedge funds blew up, and in the ensuing months of market volatility, many funds suffered big losses.

In the United States, the President's Working Group on Financial Markets moved ahead last month with previously announced plans to develop a set of best practices for hedge funds.

Besides providing more information to investors, the London group said hedge funds should offer more details about themselves online. It also suggested that more information about the industry be made public.

"The reason disclosure is at the core of this exercise is because it gives investors, lenders and other stakeholders the information they need to make better-informed decisions," Andrew Large, a former Bank of England deputy governor who is chairman of the group, said in a statement.

In addition to better disclosure, the industry group introduced standards covering everything from risk management and fund governance to activism and valuation.

Fund managers should develop a strategy that allows them to cope with unexpected events and stresses. They also should disclose interests in companies held through indirect investments.

Under the plan, the rules would be voluntary, but hedge funds that do not comply with them would be obligated to explain why they have not.

The development of the standards is an important milestone for the industry, which has become more institutionalized.

"By agreeing to adopt these standards, there is no way this could not be considered a major step in the European and U.K. market," said Brad Ziff, who leads the hedge fund practice at consulting firm Oliver Wyman, which advised the group.

Hedge funds, once a cottage industry, have raised their public profile as the amount of assets they manage has swelled. Nearly 10,000 funds manage an estimated $1.7 trillion, according to Chicago-based Hedge Fund Research.

The group is taking comments on its plan until Dec. 14 and intends to issue a final report in January. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.