The Hedge Fund Working Group, representing hedge fund managers based mainly in the UK, has published a consultation document calling for improved disclosure to investors to be “at the heart of best practice standards for the industry”. The new standards focus particularly on the areas of valuation, risk management, disclosure and fund governance. The working group has also recommended that hedge fund managers disclose more information about themselves on their websites and that more information about the industry be made available collectively to the wider public. The best practice standards would be voluntary, operating on a “comply or explain” basis. Sir Andrew Large, chairman of the HFWG, said: “Transparency leads to greater understanding and confidence.” On valuation, managers should ensure that the methodology for valuing complex assets is robust and transparent, that the presence of illiquid and hard-to-value assets in the portfolio is disclosed as are any conflicts of interest in the valuation process. On risk management, managers should develop an approach to dealing comprehensively with risk, with particular emphasis on liquidity, so that they are able to cope with unexpected events and stresses. On fund governance, managers should ensure that adequate structures are in place to handle potential conflicts between managers and investors. On activism, it is recommended that regulators require all investors to disclose their interest in companies through holding derivatives such as CFDs; managers should also develop proxy voting policies and they should not vote where they have no underlying economic interest in a company. The HFWG proposes setting up a board of trustees that would assume responsibility for the standards and for updating them in the future. Responses are now invited on the consultation document and the consultation period will run until 14 December 2007. The HFWG intends to issue its final report in January 2008.