Ethical Performance
inside intelligence for responsible business


inquiry will look at social impacts of alternative investment vehicles

May 2008

The Tomorrow’s Company think-tank is to investigate the social and environmental ramifications of changing trends in company ownership.

The inquiry will look at the effect of hedge funds, private equity firms and sovereign wealth funds on responsible business practices.

It will be carried out with the support of Hermes Equity Ownership Services, a UK-based asset manager, and will explore what might be ‘the right mix of ownership for companies to achieve optimum results’.

Mark Goyder, founder director of the UK-based Tomorrow’s Company, said that while hedge funds and private equity firms had attracted criticism, the inquiry would keep an open mind. ‘The debate so far has often been superficial and has stereotyped entire asset classes,’ he said.

Goyder emphasized that some of the new asset classes had characteristics that could be ‘very positive’ for companies. Sovereign wealth funds in particular tended to be long-term investors and the interests of private equity firms were often closely aligned with those of management, while hedge funds could engage with companies ‘in a very constructive way’.

The results of the inquiry will be made public in the autumn.

Responsible behaviour guidelines for US-based hedge fund managers were published last month by a presidential working group. They mirror those produced in early 2008 in the UK (EP9, issue 10, p5) and call for improved disclosure, more accurate valuation of assets, and better safeguards against conflicts of interest.

Accompanying recommendations have also been prepared for hedge fund investors by an advisory panel headed by Russell Read, chief investment officer of the California Public Employees’ Retirement System, the largest US pension fund. The managers’ guidelines were drawn up by a panel led by Eric Mindich, head of the Eton Park Capital Management hedge fund.

Both sets of guidelines, though essentially finalized, may be modified slightly following a two-month comment period.

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