Investors and regulators alike are asking for more transparency from hedge funds. The investment managers, on the other hand, are conscious that they have to open up but don't want to provide too much. The different service providers servicing the industry try to position themselves to benefit from this new trend toward increased fund disclosure.
A recent news about Morgan Stanley Fund Services is providing a clue about where the industry is heading.
The new reporting platform, branded Stratum, allows for reporting at various levels of detail and frequency, defined by the manager on a fund-by-fund basis. The first layer of Stratum provides transparency into the process underlying the NAV calculations, including confirmation of assets and liabilities and sources of price inputs used in computing valuations, qualifying any deeper layers of portfolio transparency revealing the drivers of risk and performance. The framework allows a range of disclosure options as agreed to by managers and their investors. 'With increased demand for greater hedge fund transparency, we developed Stratum to assist our clients by offering a flexible disclosure platform based on the books and records we maintain as fund administrator,' says Seth Weinstein, chief executive of Morgan Stanley Fund Services. 'Stratum delivers uniform and timely reporting appropriate to each fund's strategy and investors. There is no one-size-fits-all when it comes to fund transparency and the Stratum framework attempts to meet the varying needs of our clients and respond to industry 'best practices' recommendations.'
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Administrators are in the best place to provide this kind of new service since they already get all the information about the funds for NAV calculation purposes. Other service providers like Citco are already providing this kind of services while not advertising about it.
This approach poses a lot of challenges. First, fund managers will have to agree with this new tool. I guess that if they keep control over the type of information disclosed, they may be wiling to join the game. However, what will happen if the manager A is providing a certain information and not B. does that mean that manager B is trying to hide something or does he have a good reason for not disclosing. The industry will have to find a common level of disclosure, probably tailored for each strategy, before this solution become widely accepted.
I think this solution is workable and will definitively improve transparency. The new "transparency agent" will provide investors with very valuable information for choosing or monitoring a fund. The hedge fund managers should find a way to come together and define common disclosure levels before regulators do it for them.
A recent news about Morgan Stanley Fund Services is providing a clue about where the industry is heading.
The new reporting platform, branded Stratum, allows for reporting at various levels of detail and frequency, defined by the manager on a fund-by-fund basis. The first layer of Stratum provides transparency into the process underlying the NAV calculations, including confirmation of assets and liabilities and sources of price inputs used in computing valuations, qualifying any deeper layers of portfolio transparency revealing the drivers of risk and performance. The framework allows a range of disclosure options as agreed to by managers and their investors. 'With increased demand for greater hedge fund transparency, we developed Stratum to assist our clients by offering a flexible disclosure platform based on the books and records we maintain as fund administrator,' says Seth Weinstein, chief executive of Morgan Stanley Fund Services. 'Stratum delivers uniform and timely reporting appropriate to each fund's strategy and investors. There is no one-size-fits-all when it comes to fund transparency and the Stratum framework attempts to meet the varying needs of our clients and respond to industry 'best practices' recommendations.'
--
Administrators are in the best place to provide this kind of new service since they already get all the information about the funds for NAV calculation purposes. Other service providers like Citco are already providing this kind of services while not advertising about it.
This approach poses a lot of challenges. First, fund managers will have to agree with this new tool. I guess that if they keep control over the type of information disclosed, they may be wiling to join the game. However, what will happen if the manager A is providing a certain information and not B. does that mean that manager B is trying to hide something or does he have a good reason for not disclosing. The industry will have to find a common level of disclosure, probably tailored for each strategy, before this solution become widely accepted.
I think this solution is workable and will definitively improve transparency. The new "transparency agent" will provide investors with very valuable information for choosing or monitoring a fund. The hedge fund managers should find a way to come together and define common disclosure levels before regulators do it for them.
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