Safer HK Hedge Funds Likely To Escape Minimum Investment Requirement

by Philip Morton, Investors Offshore.com

16 April 2002

The Hong Kong Securities and Futures Commission has hinted that it is unlikely to impose minimum investment requirements for investors in hedge funds which offer a guaranteed capital return.

However, a report in the South China Morning Post on Monday stated that the SFC is likely to impose minimum investment levels of around US$10,000 for fund-of-fund investors, and US$50,000 for single hedge funds.

Currently in Hong Kong, hedge funds are only permitted to market to institutional investors. However, following the release of a consultation paper on selling to retail investors last year, plans are being formulated for the regulation of the sector for the protection of smaller investors.

The new proposals, expected to be unveiled next month, are likely to be welcomed by the SAR's hedge fund sector, which lobbied the SFC to impose graduated minimum investment levels according to the degree of risk involved in investing in the fund, as opposed to an across the board minimum requirement.

Speaking to the SCMP, one Hong Kong based hedge fund manager applauded the news:

'The risks for investors who purchase guaranteed products would be minimal as the fund houses would promise the investors could get their principal back,' he explained, continuing: 'It is appropriate for the SFC not to set any minimum investment restriction on the guaranteed capital hedge funds.'

However, some fund-of-fund managers have argued that the restrictions for investment in their sector should be lower, as risk is diversified with this type of investment, and in creating the basket of hedge funds, the managers have already selected suitable investments for retail investors.

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