Institutional investors are reaching tipping point in persuading hedge funds to adopt customer focused practices, David Neal, chief executive of the Future Fund, told a meeting of investors in Melbourne last week.
If enough hedge fund managers sign up to the Hedge Fund Standards Board then such service will become the norm, believes Neal.
Most of the world’s largest hedge fund managers have signed up to the HFSB, but exceptions include the JP Morgan owned Highbridge, AQR Capital Management and Lone Pine Capital.
Neal envisaged investors tackling hedge funds during discussions around due diligence – “ask the managers whether they have signed up, and if not why not,” he said.
And he urged: “The single biggest hurdle to getting managers to take this seriously is the perceived lack of investor interest.”
“This is a system with a tipping point – as enough investors show their interest, more managers will sign up and other investors and managers will want to follow suit.”
Standards created by HFSB include a transparent process for how investors will be treated in the event of a run on the fund.
Thomas Deinet, executive director of the HFSB, was in Australia for the meeting with investors where he told of proposals for a new standard that will lead to hedge fund managers giving disclosure on internal funds that are similar to those run for clients.
Deinet said the standard was needed over client concerns that such internal funds might be given priority for new ideas.
Hedge fund managers that sign up to HFSB follow a comply or explain approach to each standard. Ultimately, if a manager breaches one of the standards after first agreeing to it, it could be used as the basis for a legal action, said Deinet.