The increasingly frequent and occasionally shrill calls for government regulation of the hedge fund industry often ignore an important fact: the industry itself has promulgated various codes of conduct and best practices that are significantly more detailed, practicable and equitable to the various affected constituencies than any bill or rule thus far proposed in the U.S., U.K. or other jurisdiction. In the U.S., the President’s Working Group on Financial Markets in January issued its final reports on hedge fund best practices; the practices, if adopted, are intended to reduce systemic risk and improve investor protection. See “President’s Working Group Releases Final Best Practices Reports for Hedge Fund Managers and Investors
,” Hedge Fund Law Report, Vol. 2, No. 5 (Feb. 4, 2009). Along similar lines, the Hedge Fund Standards Board (HFSB) in the U.K. has adopted standards developed by the Hedge Fund Working Group, a predecessor organization, covering, among other things, disclosure, valuation, risk management, fund governance and shareholder conduct. Like the PWG, the HFSB is a voluntary, market-led initiative. For hedge funds, these various codes of conduct raise important issues, including: precisely how the codes operate; the pros and cons of signing on; similarities and differences between the different codes; and whether compliance with the codes will be required, either by law or the institutional investor market. This article explores each of these issues.