Hong Kong's SFC Shilly-Shallies Over Hedge Funds

by Mary Swire, Tax-News.com, Hong Kong

22 February 2002

While Hong Kong's SFC contemplates its navel over allowing wider marketing of hedge funds in the SAR, hedge-fund managers and distributors who were in general agreement with the draft regulations released in October can't understand the delay: "I don't understand how there could be such a wide divergence of views," says Patrick Tuohy, managing director at fund of funds operator Momentum Asia. "I thought that their basic proposal was pretty much down the middle."

The SFC postponed its initial launch date for a liberalised regime, claiming that the results of its consultation exercise showed a very diverse set of attitudes towards hedge funds. Discussions with the regulator had persuaded many in the investment-funds marketplace to expect that formal regulations would be published by January and the authorization of hedge funds would begin shortly after. But the widely divergent views presented by industry members in their consultation paper responses, no doubt reflecting their differing degrees of readiness to profit from liberalisation, has resulted in delay.

"There are some comments that will require us to talk to the respondents directly, to clarify and further elaborate on things," says Ernest Lau, an SFC spokesman. "We will try to have a more in-depth discussion with those respondents," he said, adding the formal regulations would probably be ready by the end of the first quarter. Key issues in the mind of the SFC are thought to be how the government will protect investors, and the minimum size of assets under management required of hedge-fund managers.

Still, the SFC's tergiversation is not stopping a hedge fund bandwaggon effect. The Wall Street Journal reports that in March, an investment trainer from London will give a four-day course on hedge funds and alternative investments for Euromoney Training group, soon to be followed by the two-day Asia Alternative Investment Management Summit, in which some 26 speakers with hedge-fund expertise or aspirations are scheduled to take the podium. In May, the annual Hedge Funds World conference returns to Hong Kong, promising 45 speakers and panels covering 22 case studies. And at the Hedge Funds Asia conference next week in Singapore, seven of the nine scheduled speakers are based in Hong Kong. The chairman for the daylong panel is Stewart Aldcroft, Hong Kong-based managing director of Investec Asset Management Asia.

Banks with strong structured product teams have also been pitching for business with hedge-fund managers, including France's BNP Paribas, Societe General and Australia's Macquarie Bank. Even online stockbroker E*Trade has said it is considering offering a universe of hedge funds or funds-of-funds in Hong Kong eventually, targeting the retail investor.

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