Requirements for independent valuation of investor assets"Independent" is a vague term at best. Does this mean that a hedge fund that trades highly liquidpositions such as equities, and is able to price such positions from a third-party source such asBloomberg, has satisfied this requirement? Or instead is the work of a third-party firm engaged bythe hedge fund manager, such as a fund administrator, required? Does this mean that it is now aviolation of the Singapore regulations for FCM's to self-administer?What about situations where positions are thinly traded or initially manager marked? Would thehedge fund manager hiring a third-party administrator, who may not have the competency toindependently price such thinly traded positions, still satisfy this requirement?An overarching concern relating to the use of such third-party administrators is that administratorsthemselves are hired by the fund managers. While they work for the fund, there are legitimatequestions about the true independence of such relationships.Requirement for FCMs to undergo independent annual audit by external advisors
Would this requirement be satisfied by a hedge fund manager’s regular annual financial statement
audit.Does this "new" requirement mean that it was previously fine for a manager not to be audited?Once again, it seems the MSA is finally catching up to what is common sense to investors. Whileinvestors should in no way outsource their operational due diligence responsibilities to a third-partyauditor, the work of an auditor and the subsequent financialstatements are extremely valuable to investors during due diligence. If a hedge fund manager is notaudited - investors should move on.If on the other hand the "independent annual audit" language does not imply that a financialstatement audit will not encompass the "independent annual audit" language of the MSA, will FCMhedge funds now be required to have a separate audit performed in addition to the financialstatement audit?Requirement to have an adequate risk management framework commensurate with the type andsize of investments managed by the FMCsOnce again, this is perhaps so vague as to be useless. Many logical well-intentioned hedge fundsmay take different approaches, some less conservative than others, in regards to the definition of the word
“adequate”. Certainly, it would be considered adequate to have an independent dedicated
risk manager, but other fund managers may feel that non-dedicated oversight is sufficient. How willthe MSA regulate this?Conclusion:
On the surface investors’ init
ial reactions to such enhanced regulatory reforms may be that moreregulation is better for investors. However, it is important that investors take measures to not onlyunderstand the technical requirements of new regulatory requirements but also whether theseadditional requirements will be effective.