The International Organization of Securities Commissions has outlined good practices for the termination of investment strategies including commodity, real estate and hedge funds.
The organization, known as IOSCO, published Thursday a set of 14 good practices related to the voluntary termination of open-end and closed-end investment strategies, in an effort to protect investors' interests during the termination process.
The report highlights the importance of adopting termination procedures that take into account investor protection issues. “The decision to terminate an investment fund can have a significant impact on investors in terms of the cost associated with such an action or the ability of investors to redeem their holdings during the termination process,” said the report.
Legislation at a national level already addresses involuntary terminations such as those caused by insolvency. “Voluntary terminations typically occur because an investment fund, although still solvent, is no longer economically viable or can no longer serve its intended objectives,” said the report.
"IOSCO Report on Good Practices for the Termination of Investment Funds" is applicable to institutional and retail strategies. “Illiquid or hard to value securities can have a direct impact on the voluntary termination of investment funds, particularly for funds established as commodity funds, real estate funds or hedge funds,” said the report. “This report sets out additional good practices specific to the termination of these types of investment funds.”
The 14 good practices are split under five categories: disclosure at time of investment, decision to terminate, decision to merge, during the termination process and specific types of investment funds.
A separate publication by IOSCO, also Thursday, said global hedge funds have enough of a liquidity buffer to meet investor redemptions under normal market conditions.
“Report on the Fourth IOSCO Hedge Fund Survey” provides regulators with insights into the industry and the potential systemic risks hedge funds may pose to the international financial system.
The report is based on data as of Sept. 30, 2016 and updates the previous survey of two years ago.
Global assets under management of hedge funds rose 24% to $3.2 trillion over the period, covering data from 1,971 qualifying funds.
The survey also found that equity long/short was the most widely used investment strategy, followed by global macro and fixed-income arbitrage.
IOSCO is recognized as the global standard setter for securities regulation. Its membership regulates more than 95% of the world's securities markets across more than 115 jurisdictions.