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July 28, 2006
FSA offers backing for hedge funds
Britain'S financial regulator yesterday said hedge funds could be suitable vehicles for private investors, but that the risks could be lessened by not putting all their eggs in one basket.
John Tiner, chief executive of the Financial Services Authority, said: "We think it's reasonable for retail investors to get exposure to the hedge-fund sector, but without the concentrated risk of investing in a single-strategy hedge fund."
Tiner, speaking after the annual meeting of the FSA, said one way around the issue was for private investors to put their money in a "fund of hedge funds" to spread the risk. Despite his relative relaxed stance on London's 300 hedge funds, 30 of which the regulator has picked out for special monitoring, Tiner said in his speech to the meeting that vigilance on complex products was more necessary than ever.
He said that although the year to March 2006 had been a strong one for financial markets, this was just the time for investors and financial practitioners to be vigilant.
He said that "the historical problems we have had to deal with in bear markets - splits, precipice bonds, endowment mortgages - have their genesis in strong markets".
Tiner added: "We have been alert, in particular, to products, especially complex products, where the downside risks that may crystallise in weakened market or economic conditions may not have been made clear to customers."
He cited the risks associated with venture capital trusts and on the insurance side to "the risk that costly payment protection insurance may contain exclusions which cause the cover not to perform if the consumer falls on hard times".
Tiner also said there were "signs that the environment for regulated firms may become more challenging in the short and medium term". There was evidence of sharp corrections in various asset classes, he added.
-Scotsman.com-
Posted by su at July 28, 2006 5:15 PM