New standards quietly castrated

The UK-based Hedge Fund Working Group released its final ‘Hedge Fund Standards’ report, 140-odd pages of sound-sounding stuff that the good guys are already at least trying to do, and the bad-to-mediocre will studiously ignore. With markets focused on on their own calisthenics, the feedback loop on Tuesday’s announcement was more muted than it might have been a few months ago.

The Financial Times’ Lex acknowledged that a lot of the issues long blamed on hedge funds really, paraphrasing Bill Gross’s famous “non-bank banks” comment, belong on the doorstep of “non-hedge fund hedge funds.”

Amid the global financial turmoil, Tuesday’s publication of a set of voluntary standards for UK hedge funds felt like a solution to yesterday’s problem. Since work started last June, mortgage lenders and structured finance desks have emerged as the real mischief-makers, not money managers taking honest punts on the movement of securities. [Emphasis added.]

But Castle Hall’s Chris Addy, on his Risk Without Reward blog, was was profoundly disappointed:

We see two problems with the final report.  Firstly, the Hedge Fund Working Group has mysteriously evolved into a self appointed “Hedge Fund Standards Board.”  Secondly, every single “standard”—already woolly—has been amended so that a hedge fund manager is only required to “do what it reasonably can.”  In all, this magic phrase appears some 40 times in the text of the standards. [Emphasis added.]

Somebody, and from a quick scan of the formal comments on the draft released last October it’s not immediately obvious who (although the report credits five prominent law firms with large hedge fund practices with helping bring the document together, so that would probably be a good place to start with the search warrants) got to this one with the castration shears.

Meanwhile, serendipity rules. The report was published on the same day that Bayou scammer James G. Marquez was sentenced, and something called Protean Investment Risks began offering insurance to protect hedge-fund portfolios “from any misrepresentation of assets, theft or other type of fraud by hedge-fund employees or directors.”

Linkage after the jump.

Doing what you reasonably can
by Chris Addy
Risk Without Reward Jan. 22 2008

Hedge fund regulation [$$]
The Financial Times Jan. 22 2008

Insurance for Hedge Fund Investors
DealBook (The New York Times) Jan. 23 2007

Hedge Fund Working Group Standards Board

Hedge Fund Working Group Standards Board
Hedge Fund Standards: Final Report

Hedge Fund Working Group Standards Board
Consultation Responses