Treasury: Finalized hedge funds’ best practices report near

Two financial industry groups will soon issue a final joint report on best practices for hedge funds, Anthony Ryan, acting Treasury undersecretary for domestic finance, told a conference today in New York.

“In September 2007, the PWG (President’s Working Group on Financial Markets) facilitated the formation of two private-sector groups to develop voluntary industry best practices, the Asset Managers’ Committee and the Investors’ Committee,” Mr. Ryan said at the Securities Industry and Financial Markets Association’s annual conference.

“In April of this year, the two groups issued draft best practices for hedge fund managers and for investors in pools, and they expect to issue finalized practices very soon,” said Mr. Ryan. He would not elaborate.

Treasury Secretary Henry Paulson, who was scheduled to speak at the conference, cancelled on short notice (via a note on the Treasury's website Monday) because of meetings in Washington.

According to a conference attendee who asked not to be named, Mr. Paulson’s top priority is to set up a team of managers who could implement the government’s $700-billion rescue package, which involves buying illiquid mortgage-related assets. That might be one reason he cancelled his speaking engagement in New York.

“We don’t have months or years and so we are moving quickly and methodically to facilitate the necessary results,” Mr. Ryan said, referring to the rescue package.

The Asset Managers’ Committee represents the alternative asset management community, while the Investors’ Committee represents endowments, foundations, corporate and public pension funds and investment consultants as well as other investors. The two groups’ draft is called “Principles and Best Practices for Hedge Fund Investors.”

Mr. Ryan cited various initiatives by the Treasury, the Federal Reserve, the FDIC as well as foreign governments to relieve pressures in the credit markets. Despite improvements, he acknowledged we are far from “normal conditions.”

“The stresses on U.S. and world financial markets are the most serious in recent memory,” Mr. Ryan said, blaming crisis on “the repercussions of this unbridled expansion and access to credit.”

Mr. Ryan also said the U.S. financial sector needs reforms, which Treasury proposed in March when it released its "Blueprint for a Modernized Financial Regulatory Structure."

“We needed to strike a balance between strong market discipline and regulatory oversight and we have not. We must strike the optimal balance,” he said.

Former Securities and Exchange Commission Chairman Harvey Pitt agreed, telling a separate panel at the SIFMA conference, “There is an overwhelming need for a reform of our regulatory system.”

One topic of conversation among attendees was the proposed launch of a clearinghouse for over-the-counter credit derivatives swaps. One attendee said the Fed, which is leading the industry’s efforts to get the project going before yearend, is expecting to receive proposals by the two largest U.S. futures markets with clearinghouses, Chicago-based CME Group Inc. and Atlanta-based IntercontinentalExchange Inc.

Contact Isabelle Clary at [email protected]