Hedge funds under transparency pressure

Hedge funds must embrace transparency to ensure their future survival and win the trust of institutional investors, a new report from PwC has found.

Hedge funds must embrace transparency to ensure their future survival and win the trust of institutional investors, a new report from PwC has found.

Institutional clients’ influence over the sector has grown in recent years, having increased their ownership of global hedge fund assets by 18% between 2005 and 2009.

Firms that will gain their business in future must demonstrate greater transparency and can gain an advantage over competitors, the report argues.

“Institutional investors want to look in the mirror and essentially see themselves,” says Henry Kenner, CEO of Arrowgrass Capital Partners LLP. “They want to see compliance officers and teams of people producing accurate reporting.”

Fund boards should be empowered to take decisions independently of hedge fund managers, the report says.

Asset valuation should be conducted independently, free from the influence of the investment team.

Investors meanwhile need to be made aware exactly how their assets are deployed.

Firms must show high standards of corporate governance, robust operational controls and strengthened regulatory compliance.

Secrecy is over for hedge funds, and their success will depend on how well they adapt to higher regulation, it says.

“In five years’ time, the hedge fund industry as we know it will be almost unrecognisable,” says PwC partner, Olwyn Alexander.

PwC conducted over 25 interviews with representatives from the UK, Ireland and Luxembourg during September and October. Those included hedge fund investors (pension funds and funds of funds), consultants, managers (large and small), administrators, prime brokers, regulators and industry associations.

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