Singapore Stesses Risk Management and Transparency in Hedge Fund Regulation

While pending legislation in the US would require hedge fund advisers to register with the SEC, and IOSCO has called for the mandatory registration of hedge funds, the Monetary Authority of Singapore is monitoring market developments and global initiatives and will fine-tune its regulatory approach as appropriate. As Singapore aligns with international standards, noted Executive Director Ng Nam Sin, the Authority will maintain a balanced approach and not ``over-swing’’ the regulatory pendulum. In remarks at a symposium on the future of the hedge fund industry, the MAS official emphasized that risk management and transparency must become the hallmarks of hedge funds. This is what investors most want to see when the look for a hedge fund to invest in, he noted, and challenging market conditions have sparked a renewed focus on risk management.

The crisis has shown that taking excessive risk without putting in place necessary risk controls is a recipe for failure, he admonished. The crisis also brought to light the need to focus on liquidity and counterparty risks, apart from market and operations risk management. As investors become more discerning, he observed, proper risk controls will no longer be an option, but rather, a critical requisite for hedge funds to institute.

In the view of the Executive Director, the crisis has also highlighted the importance of transparency with respect to the operation of hedge funds, including their investment strategies and processes. Investors have learned the hard way that they can no longer live by faith in the “black boxes” of hedge funds alone even if the past track records had been excellent. Investors need to know if the hedge funds are indeed performing according to what they have claimed in their prospectuses.

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