GFSC Relaxed On Hedge Funds

by James Falla, Guernsey Press and Star

11 March 2004

This story is reproduced by kind permission of the Guernsey Press and Star at http://www.thisisguernsey.com

The Guernsey Financial Services Commission has reiterated its flexibility on the authorisation of hedge funds.

Following a consultation exercise on how they work, completed earlier this year, the GFSC has published a document setting out the main conclusions. The findings are directed at the funds industry for vehicles which are popular with institutional investors, said Fiona French, the commission’s assistant director of investment business.

"We always had the power to waive our rules. Now we’re saying publicly to hedge fund managers that these are the ones we’re prepared to waive to establish funds here. We’re technically not changing the rules because some elements we’ve always waived," she said.

Areas where the commission encourages flexibility include: not requiring a Guernsey-domiciled and licensed custodian to fill the role of a suitably qualified prime broker; no need for complex segregation requirements for prime brokers holding fund assets; waivers for funds which can demonstrate a need to use estimates of net asset value in advance of final NAV determination; and where estimation is permitted, there may be waivers of client money rules requiring segregation of subscription and redemption monies.

The GFSC has said that some of the waivers may also be available to hedge funds targeted at less sophisticated investors. The commission will issue a more detailed report in the next two months.

There is £11bn under management in Guernsey through hedge funds – dozens of which are registered locally – and the relatively new sector is huge globally. They use the money invested in them to place complex bets on markets the world over and often wager amounts which are sizeable multiples of their assets.

Though they can be seen as a risky investment and are generally aimed at institutions with significant amounts to invest rather than as retail products, there is little evidence to suggest such funds fail more often than other kinds.

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