The SFC issued its warning on Wednesday to coincide with the publication of an updated leaflet on hedge funds, as part of its investor education leaflet series.

This leaflet explains the basic concepts and risks of hedge funds. It stresses that hedge funds are only suitable for those who can understand and bear the risks involved.

According to the advice, when considering a hedge fund, investors should: read the offering documents to understand the investment strategies and risks; ask questions about anything they do not understand; and avoid signing anything that they don’t understand.

In addition, investors were reminded by the SFC that although unauthorised hedge funds cannot be offered to the public, they may be offered to private clients.

"If you are offered an unauthorised hedge fund, you should note that the fund’s structure and operations are not subject to SFC regulatory requirements," the regulator cautioned.