The Hong Kong Securities and Futures Commission executive director Alexa Lam has warned prime brokers to put in place and implement rigorous risk management measures to guard against risks posed by hedge funds. In a speech prepared for a Hong Kong Securities Institute luncheon Tuesday, Lam said Amaranth Advisers provided a "timely reminder" of areas concerning hedge funds that needed to be addressed, including the prime brokers' role. Prime brokers may be tempted to relax risk management and credit policy for some of their larger hedge fund clients because they operate in such a competitive environment.
Lam described lack of proper oversight by senior management in hedge funds as "a recipe for disaster." She added that investors must carry out thorough due diligence and demand more risk transparency from their hedge funds. Lam reiterated the SFC's position that hedge funds should not be barred from the retail public but she said they should be subject to stringent requirements on fund managers' competence and performance fees. SFC spokespersons had no additional comment by press time.
