20 April 2010

Hedge Funds treat customers in discriminatory fashion

When even Antonio Borges, chairman of the Hedge Fund Standards Board (no, this name is no joke, though it is a misnomer if there ever was one), voices concerns about preferential deals offered to some investors and states that he "may" ask his member firms to bolster disclosure to other clients of the risks the practice poses, the lack of regulation in the hedge fund industry is laid bare for all to see. The "worrisome" practice used by more and more hedge funds of giving some clients so-called "side letters" and charging them a preferential scale of fees clearly demonstrates that the compensation and fee structure of hedge funds needs to be watched carefully by investors. These separately-negotiated agreements, which have attracted the attention of the UK's Financial Services Authority (FSA) in recent years, offer different investment terms to certain clients, some of which could disadvantage other investors.  We wonder why the FSA has not yet acted to protect investor's interests.