Hedge Fund Standards Board gets tough

In light of the Madoff scandal, the Hedge Fund Standards Board has announced tough additions to its standards on fund administration and redemptions

LONDON - The Hedge Fund Standards Board (HFSB) is proposing changes to its standards on fund administration and redemptions in the light of the financial crisis. The proposed changes, which are subject to consultation with the industry, would involve introducing new standards requiring funds' governing bodies to appoint an independent third party to administer the fund, prepare accounting records and carry out net-asset-value 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.

"The HFSB standards would already make it 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," says Antonio Borges, chairman of the HFSB. "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, IKOS, Reech AIM and Rose & Sky Investments are among 12 new managers who become signatories to the standards, bringing the total to 56 hedge fund managers.

The HFSB was formed in January 2008 to take forward the work started by the Hedge Fund Working Group (HFWG), whose report on best practice standards was published that month.

The HFWG report on best practice standards for hedge fund managers is available at www.hfsb.org.