The discussion paper, which can be accessed by interested parties until 7 December 2001, looks at the objections and recommendations of investment experts, and examines previous experiences and regulatory approaches in overseas jurisdictions in an attempt to strike a balance between market development and investor protection.

In the consultation document, the Securities and Futures Commission outlines two alternatives; a market segmentation approach, or a full public offering approach. The former, according to the proposals, would be implemented by use of a 'net worth test', or minimum subscription amount, while the latter would allow companies to offer hedge funds to the general public with few restrictions.

However, critics of the market segmentation approach detailed by the SFC feel that a high minimum subscription or net worth test would not necessarily discourage rich but inexperienced investors from participation, and argue that in the absence of prior client knowledge, hedge funds would be obliged to rely solely on the testimony of the prospective investor. They also argue that a high minimum deposit might encourage investors to commit more money than they feel comfortable with.

In terms of international hedge fund regulation, high minimum subscriptions have become the norm as a means of discouraging the unwary, inexperienced, or just plain unsuitable investor. However, beneath the SFC's staid exterior, it seems, there may lurk something of a trailblazer: 'The full public offering approach...may be seen as a departure from current international practice,' explains the SFC document. 'Nevertheless, the SFC recognises the demand for alternative investments and is mindful that full public offering should be the trend in the long term.'