Hedge Fund Standards Board issues rules on how to exit crowded theatres when someone yells “Fire!”
Aug 3rd, 2009 | Filed under: Hedge Fund Regulation, Today's Post
Over the past year, there have been many reports and recommendations from regulatory and self-regulatory bodies on “best practices” and the appropriate level of regulatory oversight for hedge funds. Many contain broad statements that, like motherhood and apple pie, are designed to engender agreement between disparate, often competing constituencies.
But here’s one that makes a number of very specific recommendations about one particular area of potential hedge fund reform – redemptions. The UK’s Hedge Fund Standards Board (HFSB) is calling for feedback on a set of best practices proposals. Taken together, they amount to a safety manual on how to manage the exit door in the proverbial “crowded theater” – whether or not someone actually yells “Fire!”.
Chapter One: How to exit the theater…
The document presents three “hypotheses” (more like “guiding principles” really):
“Hypothesis 1: Where a fund is invested in assets which have become, or are inherently, illiquid, restrictions around redemptions are appropriate to ensure fair treatment of all investors.”
Translation: Sorry folks, the exit doors are too small. Please wait your turn.
“Hypothesis 2: Where a fund is invested in liquid assets, redemptions should be honoured as long as fair treatment of investors can be ensured.” More…
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