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March 20, 2006
Hedge funds laws to be relaxed
The City's financial watchdog will this week pave the way for hedge funds to be sold to small investors.
It is currently illegal to market hedge funds to ordinary investors in Britain, but the Financial Services Authority is expected to relax current restrictions when it finally publishes its recommendations on the future of the sector.
After a change of heart during the consultation exercise, which began last June, the watchdog is expected to announce that it will allow fund of hedge funds to be set up in the UK and marketed to ordinary investors.
However, these new onshore funds are expected to carry health warnings on their risks.
The news has been enthusiastically welcomed by the hedge fund industry which has grown rapidly to more than 8,000 funds managing more than £1 trillion around the globe.
HSBC Republic's Jamie Murray, part of the team managing 19 fund of hedge funds offshore, said: "It would be fantastic for fund of hedge funds to become available to small investors. So far they have only been available for wealthy individuals.
"But minimum investments in France, Ireland, Germany and Italy, all of which now allow funds of funds to be set up within their borders, have come down to levels affordable for small investors."
However, the watchdog has drawn the line at allowing hedge funds to be set up onshore, and the FSA will also not relax rules permitting these to be direct marketed.
And while the funds of hedge funds will be authorised and invest in an underlying spread of perhaps between 10 and 100 underlying investments, those underlying funds will continue to remain outside the regulatory framework
For this reason not everyone is enthusiastic. Severn Investment Management's Justin Urquhart Stewart points out: "You may be investing in a regulated product, but it in turn is investing in funds which are not regulated.
"Because there are so few controls, you cannot see clearly what is going on. You are still playing with a chemistry set which can blow up in your face."
-Business.scotsman.com-
Posted by su at March 20, 2006 9:37 AM