"Black box" groups join hedge fund scheme

LONDON Fri Feb 12, 2010 12:30pm GMT

A man looks at stock market prices on computer monitors inside a securities company in Taipei October 28, 2008. REUTERS/Nicky Loh (TAIWAN)

A man looks at stock market prices on computer monitors inside a securities company in Taipei October 28, 2008.

Credit: Reuters/Nicky Loh (TAIWAN)

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LONDON (Reuters) - Bluecrest and Winton, two of Europe's biggest hedge fund firms, have signed up to industry body the Hedge Fund Standards Board HFSB.L, giving a boost to the sector's efforts to fend off tough regulation and meet investor demands.

The two firms, which both run large computer-driven or "black box" funds that latch onto trends in global futures markets, will sign up to the HFSB's code on issues such as valuation and risk management, which supporters hope will eventually become a global industry standard.

The moves come amid fierce debate over EU plans to regulate the freewheeling industry by controlling leverage and the marketing of funds -- moves that opponents, particularly in the UK, say will reduce competition and choice and could provoke retaliation from the United States.

The new signatories mean the HFSB now accounts for roughly 60 percent of the $350 billion (223 billion pounds) European hedge fund industry. Last year the group came in for heavy criticism from a parliamentary committee investigating the banking crisis over its slow take-up rate of individual members, if not assets.

Hedge funds hope that by banding together to draw up and commit to their own guidelines, they can help soften the view of policymakers on the extent of external legislation.

HFSB chairman Antonio Borges told Reuters he was relatively optimistic that EU regulation would not end up being too stringent.

"The scope (of the regulation) is becoming much narrower than what was originally proposed. That only confirms that the issues that investors really care about have to be dealt with differently, through the standards," Borges said.

This week the UK's Financial Services Authority warned the EU plans still carry "significant risks".

The HFSB also said New Holland Capital and Future Fund, Australia, both large-scale clients of hedge funds, had joined its board, as end-investors push hedge funds for more transparency in the wake of the credit crisis and the $65 billion Bernard Madoff fraud.

"These developments mark a significant step up in the international support for the standards from both investors and managers," Borges said in a statement on Thursday.

Bluecrest, which manages $18 billion in assets, was Europe's third-biggest hedge fund firm in June 2009, according to EuroHedge, while Winton, with $12 billion in assets, was fifth.

Both firms have joined the HFSB's Founders' Council, a core group of managers that advises the board.

The HFSB was set up two years ago following a report in January 2008 from the Hedge Fund Working Group, an industry initiative designed to respond to concerns over systemic risks posed by the industry. (Editing by David Holmes)

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