There had been reports that the complex SFC approval process had caused a number of firms to withdraw their applications, but the SFC said that only one withdrawal had taken place, citing the 'inexperience' of the operator.

The SFC's guidelines for retail hedge funds include extensive reporting requirements, but it seems that the agency has dropped its original demand that IASC reporting standards should be used in favour of a more flexible approach.

Hong Kong Investment Funds Association executive director Sally Wong told the South China Morning Post: "If they had mandated this IAS standard, this would have made it rather hard for some United States-based hedge funds to be approved . . . as they use the Generally Accepted Accounting Principles instead."

Since the SFC originally announced that it would permit retail hedge funds in Hong Kong last May, a stream of fund managers and support firms have announced that they will take part in the market, and many more funds will no doubt be launched in the months ahead.

The SFC's guidelines divide retail hedge funds into three categories - single hedge funds, fund of hedge funds and hedge funds with a capital guarantee. For single hedge funds, a retail investor must subscribe at least US$50,000, while funds of hedge funds, seen to be less risky, will require a minimum investment of US$10,000. No minimum investment has been set for guaranteed capital funds.

However, the SFC has imposed strict rules on managers of single hedge funds and funds of hedge funds, requiring them to have five years' hedge fund management experience, and limiting access for retail investors to fund managers with at least US$100 million worth of hedge funds under management.

Retail interest in hedge funds in Hong Kong will no doubt be substantial, but may be held back by the rules of the Mandatory Provident Fund Schemes Authority, which supervises private sector investment of social security contributions, and isn't yet prepared to change its rule against the use of hedge funds.