The UK-based Hedge Fund Working Group published its final report detailing best practice standards for hedge fund managers today.

The body of voluntary standards includes recommendations for managers to adopt an independent process for valuing portfolios, and to establish robust fund governance, to mitigate conflicts of interest between managers and investors. The report also recommends enhanced disclosure to investors and that managers should have a comprehensive framework to manage risk.

Also, it was announced that a new Hedge Fund Standards Board is being set up to act as custodian of the standards. The trustees of the HFSB will be responsible for updating the standards in the future and also for encouraging convergence to take place with the similar initiative currently being taken by the President’s Working Group in the US.

Sir Andrew Large, chairman of the HFWG, said, “Our final report is the result of extensive consultation within the financial industry which has helped us to refine the standards and in some important respects make them more rigorous. Now it is up to investors to help take this forward. This is a voluntary, market-led initiative based on disclosure. It is the investors who can provide the market discipline to ensure these standards are widely adopted.”

Members of the HFWG will initially act as interim trustees of the new HFSB, with Large as interim chairman, until permanent trustees are appointed.

In response to the report, the chairman of the Financial Stability Forum, Mario Draghi, said, “The report represents an important step towards improved disclosure practices and market discipline in this sector. As such, the standards can play a role in helping to enhance resilience and mitigate systemic risk.”

Draghi also welcomed the creation of the new standards board to maintain the standards and report on compliance by the industry.

The HFWG, comprising 14 leading hedge fund managers based mainly in London, was set up last year in response to concerns both about the growing impact of hedge funds and financial stability. The standards aim to address these and other issues through increased disclosure to investors and other counterparties.