An industry which is transparent, regulated, and investor friendly
In parallel to renewed investor momentum behind the institutionalisation of the asset class, regulators too have been looking to put hedge funds on the same footing as more traditional asset management businesses.
Transparency on hedge fund activity
First and foremost and in a move which mirrors investor requirements for greater transparency, regulators have sought increased disclosures on hedge fund activities and operations. Regulators have sought more and more co-ordinated information on trading activity, for example the information sharing arrangements announced in 2009 by the UK and US regulators.
Man has participated in the UK FSA's hedge fund survey since inception and welcomes the moves to co-ordinate information-gathering around the world. Consistent standards in this area will increase regulator understanding whilst mitigating the operational and compliance cost for managers. We believe that the enhanced levels of manager regulation and transparency will place a premium on operational strength and experience.
Regulating hedge fund managers
At the global, regional and individual country level there has also been an increased call for more uniform regulation of hedge fund managers with recent examples including G20 Communiques, the European proposals for an Alternative Investment Fund Manager Directive (AIFMD) and the US draft bills on financial sector reform. We have also seen an increased focus on internal governance (for example, the UK's Walker Review).
As a long-standing listed entity, Man Group has followed the highest standards of corporate governance for many years. We welcome proportionate and considered regulation. We have operated through regulated management entities in a number of jurisdictions for many years, and welcome increased co-ordination in the regulation of managers across different jurisdictions.
Trading centralised and on-exchange
The financial crisis and collapse of Lehman saw a renewed focus on trading, particularly in relation to OTC derivatives. Concerns were raised most notably regarding transparency and the lack of centralised clearing. We have now seen proposed legislation in the US, with the EU soon to follow, regarding moves towards on-exchange trading and centralised clearing – developments which could provide benefits to market participants, provided the details are worked out effectively. This will place a premium on the operational capability to match the complexities of any new regulations.
The challenge of co-ordinating regulatory initiatives and the impact of adjacent legislative proposals
There have been examples over the period of differing regional approaches to similar policy challenges. April 2010's G20 Communique reaffirmed the importance of international co-ordination, if the policy approach to a global industry like hedge funds is to be effective.
The regulation of hedge funds takes place within a much broader regulatory context, with notable focus on the banking industry. Proposals include enhanced regulatory capital rules and the introduction of banking taxes and levies. It is important that these measures do not penalise hedge fund managers, impose disproportionate burdens on them, nor crucially confuse the role of asset managers with that of banks.
A new era of asset management
The past year has done much to restore the performance credentials for hedge funds over the medium term. There is an increasing recognition that different hedge fund styles have varying performance, volatility and liquidity characteristics, but that the common thread is a revitalised, sophisticated approach to the markets, which is built around a managed approach to risk. Momentum is building for hedge funds to earn a place in every investor's portfolio.
Becoming widely accepted modern asset managers by meeting the expectations and requirements of investors and regulators in multiple jurisdictions around the world represents both a challenge and a tremendous opportunity for the hedge fund community.
