Most of the largest UK-based hedge funds support the industry's best practice standards but remain uncommitted to signing up to them, according to a survey by professional services company Kinetic Partners.

Kinetic Partners questioned more than 100 UK-based hedge funds on whether they planned to sign up to the standards overseen by the Hedge Fund Standards Board. The HFSB is a firm that has been set up to monitor conformity to the hedge fund best practice standards. The standards were drawn up by the Hedge Fund Working Group, which is backed by some of the

UK’s biggest hedge fund firms.

The standards set out a recommended approach to issues including risk management, disclosure to investors, fund governance and valuation.

The hedge fund industry has suffered a poor year for returns, falling by an average of 12.5 per cent since the start of the year. The heavy losses have led to large redemptions and prompted calls by politicians to more tightly regulate the sector. A number of national regulators, such as the UK's Financial Services Authority, have restricted practices such as short-selling. In their defence, hedge fund firms say they provide valuable additional liquidity to markets.

The report by Kinetic found that fewer than one in ten hedge funds said they will do so and nearly one fifth said they will definitely not comply. Some two-thirds have not yet decided whether or not to comply with the standards.

Most of the hedge funds polled by Kinetic Partners managed assets in excess of $200 million and collectively represented over half of the total hedge fund assets under management.

Most hedge funds were strongly supportive of the standards, however. More than 60 per cent of the funds surveyed either agreed or strongly agreed with the idea of industry-led best practice standards, and the same percentage said they believed the standards are robust and will improve hedge fund transparency and accountability and overall will be good for the industry.

“It is essential that effective, appropriate self-regulation is applied to hedge funds. The global hedge fund industry faces a time of acute stress, characterised by fund closures, increased redemptions, liquidations and litigation, and there will be pressure on governments to regulate more heavily,” said Julian Korek, a member of Kinetic Partners,.

“There are sound arguments in favour of enhanced regulation – transparency, communication with investors and valuation policies all need to improve. But it would be far better if the industry itself took charge of raising standards in this area,” he said.

Kinetic Partners surveyed more than 100 UK-based hedge funds, 85 per cent of whom managed assets in excess of £100 million.