Hedge Fund managers are usually very cautious regarding the level of transparency they provide to their funds' shareholders. The reasons invoked by the managers for such secrety are usually their fear to see their investment strategy reverse engineered or other investors betting against them. Even if the managers provide investors with some granular information about the fund's portfolio, this information partiality can be questioned.
However, their is one person for whom the hedge fund manager has no secret.This is the fund's administrator. In order to perform its duties, the administrator needs to have access to detailed information about the fund's portfolio. In most cases the information is gathered directly from the fund's counterparties.
Following investors' demand for more transparency, some administrators understood, that they were in the best position to provide this additional disclosure in an independent manner. Today, at least three of them (Citco, Morgan Stanley and Globop), are proposing transparency reports to investors for funds which have elected to propose this service to their shareholders. The managers can decide which level of transparency they want to provide.
A common layer of transparency proposed by the three administrators is a report providing information about the NAV calculation process. The information included in those reports can cover pricing sources, position reconciliations, fund assets and liabilities, counterparty risk concentration, portfolio liquidity and where assets are held in custody.
According to the Q4 2009 HFN Administrator Survey, the three above mentioned administrator had assets under administration at the end of 2009 totalling $582.44billion which represents approximately 25% of the total hedge funds assets.
The tools for more transparency into the opaque hedge fund industry are available, investors need now to use them and put pressure and their managers and the fund's administrator for a broader generalization of those practices.
Related links
http://www.morganstanley.com/about/press/articles/9bcef2d6-5463-11de-96f6-3f25a44c9933.html
http://www.globeop.com/globeop/proserv/fund_administration/fund_performance_reporting/
http://www.citco.com/Divisions_Transparency_Platform.jsp
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