FSA Official Warns Institutional Investors On Hedge Fund Risks

by Robin Pilgrim, LawAndTax-News.com, London

17 October 2005

Speaking last week at the Reuters Corporate Finance Summit, Tom Huertas, head of wholesale bank regulation at the UK's Financial Services Authority, urged institutions to be aware of the risks of hedge fund investment.

"In terms of what's called a blow-up...we expect institutional investors to be professional buyers and to do their own due diligence and...recognise that they are at risk for the entire amount of their investment," he explained.

Mr Huertas also went on to express concern regarding the sale of such funds to smaller investors, announcing that:

"We have a discussion paper indicating some reservations about hedge funds being sold to individual investors."

One of the proposals put forward in the discussion paper is for the introduction of a more transparent regime for hedge funds, similar to that shortly to be launched in the United States. Responses are invited from interested parties until the end of this month.

According to Reuters, which reported on the meeting, the FSA official went on to welcome new rules introduced by the Takeover Code which will, from November 7, oblige hedge funds to declare their exposure to shares in a takeover battle acquired via derivatives such as contracts for differences.

He suggested that the increase in transparency will give the Takeover Panel and investors "the opportunity to get a fuller picture of the circumstances surrounding a takeover situation".

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