Can hedge fund transparency ever really be achieved?
A recent article on hedge fund transparency was published in the pensions and investments publication which shed some light on the transparency – or opaqueness – in the global hedge fund industry. Whilst many would have expected 2007 / 2008 to lead to a greater level of transparency, and a general clean-up of this field, in the last 2 years there have been almost 60 convictions or guilty pleas by hedge fund executives or consultants.
Transparency has been a watchword for funds and investors alike in the recent past, but what can be done in an industry which has thrived in opaque waters, and where full transparency can lead to a drop in performance? Jay Eisenhofer, from Grant and Eisenhofer PA suggested, in the article that the answer lay in ensuring hedge fund regulation means their fiduciary duties are “explicit, irrevocable and publicly recognized”, something which is not the case at present. But is this realistic, given the differing legislative environments globally, where hedge funds can move to instead?
Likewise, a working group has been set up to drive the “open protocol enabling risk aggregation standards”, which includes consultants, fund managers, large-scale investors and technology providers, who promote standardised reporting procedures for collection, collation and conveying hedge fund risk information – consistent industry practices investors can relay on. Whilst this will not stop a rogue operator, it should provide a standardised level of expectation from investors, meaning transparency and risk awareness are driven from the bottom up.
The underlying question is, without the vocal and overwhelming support of investors – and a sharp drop in allocations – will hedge funds or regulators take the difficult decisions needed to mean transparency is more than just a good buzzword drowned out by absolute returns? I’d love to hear your thoughts below…