LONDON (HedgeWorld.com)–A speech by a top official of the U.K.’s Financial Services Authority has targeted asset valuation practices as the core of its growing oversight of hedge funds and has publicly criticized “poor experiences” in this area in the United States.
The declarations came in a speech by Dan Waters, the FSA’s Sector Leader on Asset Management, delivered in Edinburgh to an annual conference held by the National Association of Pension Funds, the U.K.’s biggest investment interest group. The remarks come just days before the FSA is expected to unveil new guidelines that could permit some scope for the marketing of hedge funds to U.K. retail investors.
Mr. Waters said that that regulators and funds need to give “due regard to implementing appropriate systems and controls around the valuation process.” As part of the valuations review, Mr Waters said the FSA was probing reporting lines within funds as well as the appropriateness and timing of independent valuations.
“All of this may seem to stating the obvious, but how are hedge funds doing in respect of valuing complex and illiquid assets? The answer is mixed, with some particularly poor experiences in the United States,” Mr. Waters said. He also estimated that valuation-related losses in hedge funds amounted to US$1.6 billion in 2005.
The FSA is eager to be seen extending regulatory oversight over the fast-growing hedge fund industry. It currently licenses fund managers but not individual funds. For the moment, this distinction looks set to be retained, notwithstanding the rising use of hedge funds by U.K. pension managers and the likelihood of their soon-to-be expanded availability to retail investors.