West Palm Beach (HedgeCo.net) – Leading alternative investment firms are adopting best practices for their funds with an eye to the Sarbanes-Oxley act*, hedge fund provider, TKS Solutions said in an announcement, also launching a new system specifically designed for hedge funds.

*The act was created in 2002 as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. A new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies.

"New regulations are not the only issue funds have to deal with" says Ron Kashden, president of TKS Solutions. "With the tight capital market many investors are demanding more flexibility in their fee structure and liquidity terms. The days of complacent investors willing to lock in their capital for years at a time may be over. Funds that have always allowed for annual and even quarterly redemptions are finding that they have to offer monthly liquidity to attract new capital. While this makes sense from a business stand-point, it introduces accounting complexities that are wreaking havoc in the back office. Simple tasks, such as accruing management fees, can quickly become an arduous calculation when funds that charge quarterly allow redemptions on a monthly basis.

Adding to the complexity, TKS said, is that fund administrators are reporting new fee structures with innovative loss-recovery provisions.  While this adds pressure for portfolio performance, it also provides the fund with a revenue source to live off of in bad times. Managing these intricacies necessitates accounting tools and practices that funds may not have required historically. Yesterday’s spreadsheets are giving way to sophisticated software packages specifically tailored for the back-office needs.

From an operational perspective, the hedge fund industry is finally growing up, TKS said. Their ad-hoc practices, more appropriate to a "mom and pop" shop than a sophisticated financial enterprise, are being replaced with a regulatory best practices framework and the expert systems used by their institutional counter parts.

TKS Solutions works with partners worldwide to serve its customer base of leading hedge funds, fund of funds, private equity firms, administrators and management companies, ranging from $50 million up to $20 billion under management.

Tags: accounting oversight board, accounting scandals, accounting tools, fee structures, fund administrators, fund-provider, hedgeco, investment-firms, operational perspective, pcaob, peregrine systems, portfolio performance, public company accounting oversight board, redemptions, revenue source, sarbanes oxley act, sophisticated software, tyco international, west palm beach, wreaking havoc

Evening Standard – Veterans of the secretive $1.5 trillion (£1 trillion) industry say the $50 billion Madoff fraud could bring about sweeping changes in the way the authorities monitor activity.

"This is an Enron moment for hedge funds," said Peter Rup, chief investment officer at New York hedge fund Orion Capital Management. "Regulation would be welcome, primarily from a trust standpoint."

Enron, once the world’s largest energy-trading firm, collapsed in 2001 amid allegations of accounting fraud. Less than a year later, US lawmakers passed the Sarbanes-Oxley Act, which set tighter corporate accountability rules for publicly traded companies.

Suggestions for rule changes for hedge funds include strengthening whistleblower programmes and imposing capital requirements similar to those for mutual funds. Rup and others argue this would restore confidence in the market.

Read Complete Article

Tags: accounting fraud, allegations, authorities, capital-management, chief-investment-officer, confidence, corporate accountability, energy trading, enron, lawmakers, mutual funds, orion capital, rule changes, rup, sarbanes oxley act, standpoint, sweeping changes, trillion