As you are likely aware by now, the Asset Manager and Investor Committees of the President’s Working Group on Financial Markets released their long awaited hedge fund guidelines yesterday (Asset Managers’ Committee report, Investors’ Committee report). 

The Asset Managers’ report contains a lot of material that hedge fund managers will recognize from their existing “due diligence questionnaires” – staple fare for institutional sales.  

But according to the text, the “bar is being raised”:

“We believe this Report raises the bar for the industry by providing strong and clear guidance to managers for strengthening their practices in ways that investors demand and the markets require, while also providing managers with appropriate flexibility to continue to innovate and grow. By adopting these practices, hedge funds will strengthen infrastructure and risk management practices that can help them more effectively manage market events or financial crises that may arise.”

The big question now seems to be “will hedge funds adopt the recommendations?”  The report leaves little doubt that its proposals are guidelines only.  In fact, the word “should” appears 245 times in the report, while the word “must” appears only 11 times.  Interestingly, the word “should” is followed by “consider” 18 times, “include” 12 times and “establish” 11 times.

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