Apr. 29, 2008

President’s Working Group’s Asset Managers’ and Investors’ Committees Release Best Practices Reports

On April 15, 2008, two private sector committees established in September 2007 by the President’s Working Group on Financial Markets released separate yet complimentary sets of best practices for hedge fund asset managers and investors.
The Asset Managers’ Committee Report counsels hedge funds to take a comprehensive approach to strengthening practices in “all phase of their business,” emphasizing controls and enhanced procedures in five critical areas: disclosure, valuation, risk management, trading and business operations and compliance, conflicts and business practices.
The Investors’ Committee Report contains two parts - a Fiduciary’s Guide for fiduciaries considering an investment in hedge funds on behalf of their principals (e.g., pension funds), and an Investor’s Guide for executing and administering a hedge fund program.

The SEC’s “cash solicitation rule” requires certain disclosures and acknowledgments from “clients,” so, following Goldstein, application of rule to hedge fund advisers is ambiguous.
The SEC has indicated that it will issue guidance on the application of the rule to hedge fund advisers.

Couple did not dispute CFTC’s allegations of false and misleading statements, including claims of returns averaging 20 percent per month and claims that fees would only be charged after investors’ funds doubled.
Couple engaged in Ponzi-like scheme and spent investors’ money on personal expenses such as home renovations, a Jaguar automobile and Rolex watches.
Court imposed maximum penalty against husband and reduced penalty against wife.

Proposed rule would require employee benefit plan service providers, such as hedge fund advisers, to disclose information allowing plan fiduciaries to assess the “reasonableness” of provider fees and any potential conflicts of interest.
MFA asked the DOL to clarify that the proposed rule does not apply to privately-offered pooled investment vehicles that do not constitute ERISA plan assets.
MFA recommended that the rule’s conflict of interest disclosure provision be modified to require disclosure only of objectively material conflicts of which a service provider is aware.