LONDON (Reuters) - Britain's Financial Services Authority (FSA) has stepped up its contacts with hedge fund firms and says some institutional investors should do more due diligence when investing in these freewheeling vehicles.
Tom Huertas, head of the Financial Services Authority's banking division, told the Reuters Global Finance Summit that the FSA had been progressively intensifying its conversations with big hedge fund firms and had increased the number of firms it was talking to.
His comments come as the $1.7 trillion industry faces its biggest ever challenge, from highly volatile markets, poor performance and investor outflows.
"We have intensified our contact and supervision with the hedge fund manager community," said Huertas, adding this had been a continuing process since the FSA started such a dialogue in 2005.
"We've identified the largest and given them a relationship manager. There is much more frequent dialogue with the largest and most significant hedge funds. We have a fairly good idea what they're doing and the type of practices they're following."
Last month FSA chief executive Hector Sants said he didn't think more regulation was needed in this area but that more effective regulation was needed.
Huertas also said some institutional investors could be doing a better job in performing due diligence on hedge funds, which are generally less transparent than mutual funds.
"Investors in UK-managed hedge funds are large institutional investors and they have a duty to their end investors to perform due diligence. They need to do what they're supposed to do as institutional investors.
"Some investors, shall we say, could be doing more due diligence. There is probably a high degree of correlation between poor due diligence and large losses."
(Editing by Greg Mahlich)
(For summit blog: summitnotebook.reuters.com/)
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