One of the main industry groups representing hedge funds has published a global guide to best practices for these investment vehicles, coming at a time when policymakers have been calling for greater openness in the sector.

The Alternative Investment Management Association, which is based in London with 1,280 corporate members from 47 countries, said it will publish what it calls the first global guide to sound practices for fund of hedge funds managers.

The guide is due to be published early in 2009. It will focus on areas including risk management, disclosure to investors, valuation, management of conflicts of interest and other operational issues.

The hedge fund industry has taken the step against a background of controversy about the role of these funds, many of which are domiciled in offshore financial centres, in modern financial markets.

Last year, the Bank of England said it wanted London-based hedge funds to agree a voluntary code of conduct to improve governance in the industry.

Last month, the Financial Services Authority, the UK regulator, required hedge funds and similar institutions to disclose short positions they take in companies’ shares. The move has been criticised for being complex and because hedge funds were given only a few days’ notice by the FSA about them.

In its announcement, AIMA said its guide will be produced and overseen by a steering group of fund of hedge funds managers, who between them manage $150 billion of assets worldwide.  The group, which is chaired by Gilles du Fretay, président of HDF Finance includes Financial Risk Management; Man Investments; Fauchier Partners; Allianz Alternative Asset Management; Unigestion; Pacific Alternative Asset Management Company; Ivy Asset Management Corp and Penjing Asset Management.

“There are currently no dedicated guidelines for fund of hedge funds managers yet the majority of new institutional investors tend to favour this investment route, rather than investing directly in hedge funds,” said Andrew Baker, deputy chief executive of AIMA and a member of the steering group.

The hedge fund industry has expanded rapidly in recent years, overseeing a total of $1,875 billion at the end of March this year, a rise from $1,426 billion at the end of 2006, according to Chicago-based research firm Hedge Fund Research. During the same period, the number of funds of hedge funds has grown from 2,220 to over 2,600.