The President’s Working Group on Financial Markets, formed under the auspices of the Department of the Treasury, will form two private sector groups to develop best practices for the hedge fund industry, Dow Jones reports.

The working group is suggesting the best practices in lieu of regulations. For one thing, it is suggesting market discipline will keep systemic risk at bay. “The market will benefit if experienced participants develop and implement best practices,” said Treasury Secretary Henry Paulson. The hope is that the best practices will impose some restraint on the industry without stripping it of innovation.

Chairing the investors’ committee will be Russell Read, chief investment officer of the California Public Employees’ Retirement System, and chairing the managers’ committee is Eric Mindick, chief executive of Eton Park Capital.

Read said he doesn’t plan on concentrating on regulatory issues but on guidance for investors on how to assess and whether to invest in a hedge fund. The managers group will concentrate on trading practices, valuation and recordkeeping.

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