Regulation
AIMA Guide to Sound Practices for Hedge Fund Valuation
The Alternative Investment Management Association (AIMA), the leading global hedge fund and alternative investment industry association has issued a new Guide to Sound Practices for Hedge Fund Valuation.
The Guide builds on the ground-breaking research on asset pricing released by AIMA in 2005. The Guide provides 15 Recommendations on sound practices for hedge fund governance, transparency, processes and methodology, as they relate to the valuation of hedge fund portfolios. It includes further discussion and information around each Recommendation to enhance knowledge of the readers.
While recognising that a “one size fits all” approach is not appropriate for hedge funds, the Guide seeks to provide practical direction with working examples for each Recommendation. One of the Guide’s major initiatives is a template for a hedge fund Valuation Policy Document.
The 72 page Guide is the work of a committee representing a wide range of industry practitioners. It is designed for use by the global hedge fund industry and those involved in its activities. It is expected that there will be keen interest from hedge fund managers. Many of them have already worked with other stakeholders to establish valuation practices, which they can now benchmark against AIMA’s Recommendations. Link to full document, including the 15 Recommendations is below.
IOSCO finalizes nine principles valuations of hedge fund portfolios
The International Organization of Securities Commissions (IOSCO) has publicly released its Principles for the Valuation of Hedge Fund Portfolios. This follows the launch of a public consultation paper in March on valuation principles which IOSCO prepared with extensive input from industry professionals.
The Principles describe techniques which should strengthen the controls, oversight and independence of the valuation process. They emphasize the importance of written policies which are implemented consistently and regularly reviewed. These measures should strengthen the valuation process thereby making it more likely that the resulting valuation is appropriate. The Principles may also be helpful for institutional and sophisticated investors in assessing the quality of the valuation framework within hedge funds.
The 9 Principles are:
- Detailed, documented policies and procedures should be established for the valuation of financial instruments held or employed by a hedge fund.
- The policies should identify the methodologies that will be used for valuing each type of financial instrument held or employed by the hedge fund.
- The financial instruments held or employed by hedge funds should be consistently valued according to the policies and procedures.
- The policies and procedures should be reviewed periodically to seek to certify their continued appropriateness.
- The Governing Body should seek to certify that an appropriately high level of independence is brought to bear in the application of the policies and procedures and whenever they are reviewed.
- The policies and procedures should seek to certify that an appropriate level of independent review is undertaken of each individual valuation and in particular of any valuation that is influenced by the Manager.
- The policies and procedures should describe the process for handling and documenting price overrides, including the review of price overrides by an Independent Party.
- The Governing Body should conduct initial and periodic due diligence on third parties that are appointed to perform valuation services.
- The arrangements in place for the valuation of the hedge fund’s investment portfolio should be transparent to investors.
Qualifying Investor Fund authorisation process
The Irish Financial Services Regulatory Authority (the “Financial Regulator”) has approved a filing-only authorisation process for qualifying investor funds (“QIFs”) . The aim of this change in the authorisation process is greater speed to market of a fully regulated product.
This enhancement of the QIF structure means the Regulator has approved a proposal to revise the current process for authorization of QIFs, such that a QIF will now be capable of being authorized by the Irish Financial Regulator on a filing only basis.
The effect of this development is that, where the Irish Financial Regulator receives a complete application for the authorisation of a QIF before 3.00pm on a day, a letter of authorisation for that QIF can be issued the following day. An application for authorisation will be complete on the basis that all parties to the fund are approved and that the fund reflects the agreed parameters. The parameters for a QIF will be simplified and codified, which will be included in a revised application form, a QIF application form.
MIFID has now been fully transposed into Irish law
Ireland is one of the first Member States to fully transpose the Markets in Financial Instruments Directive, or “MIFID” as it has come to be known. This has been achieved with the close assistance of the Financial Regulator and strong co-operation from industry.
The MIFID harmonises and modernises the EU-wide legislative framework for investment firms, promoting greater cross-border competition and the competitiveness of the EU financial sector overall. The MIFID provides investment firms with an effective “single passport” to provide their services across the EU on the basis of their home country authorisation. It is a key element of the EU’s Financial Services Action Plan supporting the creation of a single market in financial services.
Irish UCITS rules now permit 130/30 funds
Irish UCITS rules now permit 130/30 funds
On 5 October, 2007 the Financial Regulator issued a revised policy note in respect of physical short selling by UCITS. The revised policy note states that UCITS may now engage in covered physical short selling. The new Irish interpretation on the UCITS rules allows funds to engage in covered physical short strategies whereas to date these funds have been restricted to synthetic short selling by the use of derivatives. The attached flyer covers this policy change in detail under the following topics:
- Introduction
- What is short selling?
- New short selling rules in UCITS
- So what exactly are 130/30 funds?
- Key policy changes
- Contacts
Taxation
IM Tax Bulletin
On 22 January, the European Commission announced its decision to refer Belgium, Spain, Italy, The Netherlands and Portugal to the European Court of Justice over discriminatory taxation of outbound dividends. This development is of considerable importance to investment funds, pension funds and life insurance companies that invest in European equities. The Tax Bulletin outlines the development and its implications in more detail.
FIN 48 – Investment Management tax bulletin
Funds
AIMA issues revised sound practices recommendations for hedge fund managers
The Alternative Investment Management Association (AIMA) has published its revised Guide to Sound Practices for European Hedge Fund Managers. The Guide - originally published in 2002 - considers various practical aspects of establishing and managing a Hedge Fund business in Europe and recommends corresponding sound practices. It is intended to be a practical business tool for hedge fund managers, and to provide relevant and insightful information for the investor and regulatory community, and to all those servicing and providing professional advice to the hedge fund industry.
The revised Guide was developed and overseen by a 30-strong industry working party.The working party comprised leading European Hedge Fund and Funds of Hedge Fund Managers, prime brokers, fund administrators, legal and auditing professionals. The Guide reflects the practical issues which any well-run business in the hedge fund sector should strongly consider. The Guide covers the following key issues:
- Creating and Managing a Hedge Fund Business
- Investment Process and Portfolio Risk Management
- Portfolio Administration and Operational Controls
- Raising Capital and Investor Relations
- Hedge Fund Structures and Organisation
