FSA May Allow Retail Investors Access To Funds Of Hedge Funds

by Robin Pilgrim, LawAndTax-News.com, London

28 March 2006

The UK's Financial Services Authority (FSA) revealed last week that in 2007, it will consult on widening the range of funds that can be marketed to retail investors to include authorised funds of hedge funds.

This would enable retail investors, who are already gaining access to products with hedge-fund investment characteristics through a variety of means, to invest in products that would be subject to the FSA's regime for authorised collective investment schemes.

According to the FSA, the funds would be subject to structural and operational safeguards, including the requirement to have an independent depositary.

In addition, the fund of hedge funds managers would not be able to invest into all hedge funds – there would be liquidity criteria, for example, in respect of the underlying funds. This is intended to enhance investor protection whilst allowing increased investor choice.

Clive Briault, the FSA's Managing Director for Retail Markets, announced that:

"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."

"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. These onshore funds of funds would benefit from the protections already in place for authorised funds."

"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."

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