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“The assessment of potential systemic and operational risks associated with these activities has become more complex and challenging”, ministers stated and acknowledged that hedge funds have also contributed significantly to the efficiency of the financial system.
Finance ministers also welcomed the FSF Report on Highly Leveraged Institutions and support its recommendations. “The global hedge fund industry should review and enhance existing sound practices benchmarks for hedge fund managers; in particular in the areas of risk management, valuations and disclosure to investors and counterparties in the light of expectations for improved practices set out by the official and private sectors”, ministers state. “Counterparties and investors should act to strengthen the effectiveness of market discipline, including, by obtaining accurate and timely portfolio valuation and risk information.”
Supervisors should act so that core intermediaries continue to strengthen their counterparty risk management practices. In the exercise of their supervision of hedge funds counterparties, relevant authorities should monitor developments and cooperate among themselves.