In July a hedge fund working group was established in the UK under the chairmanship of Sir Andrew Large to review industry standards and best practice in relation to valuation, risk management and disclosure. None of those involved in this project would have anticipated, or desired, that the remit would have become quite so topical, quite so soon.

Hedge funds are not right at the centre of the current market storm – that distinction lies with the banking sector, subprime lending and conduits. However, there is a web of linkages between banks and hedge funds: the distinctions between conduits (sponsored and managed by banks) and structured investment vehicles and SIV-lites (sponsored by banks but often managed by hedge funds) are blurred. That, plus the similarity of issues facing banks and hedge funds, particularly in relation to valuation and risk management, demonstrates how integral hedge funds have become to the workings of the financial system.