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AOI Hedge Fund Principles/Guidlines

hedge_funds_4New York (HedgeCo.Net) – The Alignment of Investments Association (AOI) on Tuesday released the latest version of its hedge fund best practices guidelines. While it’s unclear whether all of these proposed measures will take hold in the industry, one this is crystal clear – in the current day and age, hedge funds have more pressure than ever to effectively increase alpha, handle regulatory concerns, and attract top-tier talent.

Steve Nadel, partner and co-head of the Investment Management Group at law firm Seward & Kissel, who has extensive experience in issues relating to the establishment and ongoing operation of hedge funds, notes that the last two sections of the AOI Hedge Fund Investing Principles — Documentation & Governance and Transparency, Valuation & Disclosures — are “not groundbreaking,” as many of the points in these sections have become industry standards “given the heightened sensitivity relating to protecting investors and treating them fairly.” However, there are some interesting principles in the Economic & Liquidity Terms section, which point to the increasing industry tension surrounding hedge fund operating costs and performance fees. Steve’s commentary is below:

“However, with regard to a number of the proposals relating to management and performance fees, especially those involving laddering down management fees and creating new performance fees tied to alpha generation, it remains to be seen whether these will become widely accepted, especially as the industry becomes more institutionalized and regulated, which will continue to drive up overhead costs and the demand for top tier talent.”

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