Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Monday, October 02, 2006

Hedge funds and regulation: another breach in the wall?

Hedge funds have been successful in defending themselves against excessive (some would argue ANY) meaningful regulation. However for the investor relations officer for whom hedge funds represent a major challenge, there are 2 signs of light on the horizon.

First, from today – in a little highlighted move – hedge funds will be obliged to disclose the favourable terms offered to select investors such as large, loyal or early investors. Some of these side letters allow these select investors to withdraw their funds earlier than most, in the event of a hedge fund disaster, to give more detail of the funds management or changes in personnel.

The Alternative Investment Management Association has been working diligently with the FSA to agree a code of practice. This is applicable from October 2nd. 2006. Hedge funds who do not comply could, in theory, have their authorisation withdrawn, or not approved.

Separately, there has been movement in the key area of disclosure of CFD’s, hedge funds’ favoured vehicles for position taking. In its consultation earlier this year on the implementation of the Transparency Directive, the FSA shelved the debate about whether to extend “material” interests to include CFD’s in the reporting of major shareholdings, until next year when it is expected to consult on the issue.

The Association of Investment Trust Companies last week set out its views on the issue, supporting wider disclosure of holdings in CFD’s as major shareholdings. This could bring the FSA’s Listing Rules in line with the rules from the Takeover Panel, and provide much needed relief to IRO’s seeking to understand their shareholder’s register.

Transparency Matters understands that the AITC’s position has support from the IMA and ABI.


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