FSA to take hedge funds mainstream

Friday, 24 March 2006 12:00

Normal investors could be about to gain access to hedge funds, under new proposals from the The Financial Services Authority (FSA).

Hedge funds have previously only been open to large or institutional investors, or to the public through fund of hedge funds products.

They differ from other funds through their ability to take advantage of investment opportunities not open to standard funds – meaning they can make large returns in falling as well as rising markets.

And now the FSA has said it will consult next year on including hedge funds among the products that can be marketed to retail investors.

“Given the reality of the contemporary retail market, it seems sensible to permit the marketing of funds of hedge funds through an authorised, onshore vehicle,” said Clive Briault, FSA managing director for retail markets.

“Retail investors can currently gain access to products with hedge-fund investment characteristics through a variety of means, including listed funds of hedge funds, funds offered on the internet from European jurisdictions, structured products linked to hedge fund indices and funds under the UCITS III (Undertakings for Collective Investments in Transferable Securities) Directive.

“We also need to consider how we can help consumers to understand the features and risks associated with these products. Our consultation will also address these important issues.”

The move has drawn praise from inside the investment industry.

Sheila Nicoll, deputy chief executive of the Investment Management Association, commented: “The FSA have listened to our concerns and have produced a sensible document addressing the future of products which use a wider range of investments than traditional authorised funds.

“To ensure the success of such products, however, it is imperative that the current UK tax regime is revised as the present system is a major barrier to the domicile of such funds in the UK.”

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