Comments made by the UK’s financial regulator, the Financial Services Authority, on the hedge fund industry, have been welcomed by the globa...

Comments made by the UK’s financial regulator, the Financial Services Authority, on the hedge fund industry, have been welcomed by the global hedge fund trade association, the Alternative Investment Management Association. The regulator had raised concerns over the increasing use by hedge funds of illiquid assets and in-house administration in its annual Financial Risk Outlook paper. The paper noted that while the risk posed by hedge funds to the overall stability of the financial system is low, their growing holdings of illiquid assets might present a danger that markets could be destabilised at a time of future crisis. AIMA has responded to the FSA, saying that the paper highlights a number of "significant hedge fund industry issues," such as valuation practices and asset pricing and will now start the second phase of its work in this area. In this second phase, AIMA will collaborate with key industry practitioners globally, including managers and leading administrative and pricing bodies. “The global hedge fund industry is constantly seeking to review and improve its practices. This is clearly evidenced by the work being carried out by AIMA and its members in the areas of asset pricing and fund valuation,” said Florence Lombard, executive director of AIMA.