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AIMA Lukewarm On Retail Access To Hedge Funds

by Carla Johnson, Investors Offshore.com

10 November 2005


The Alternative Investment Management Association (AIMA), the leading global hedge fund and alternative investment industry association, has issued its response to the UK Financial Services Authority discussion paper exploring options for allowing the spread of hedge fund products to retail investors.

Published by the FSA in June 2005, the paper, entitled “Wider-range Retail Investment Products” deals with the issue of an appropriate regulatory regime which would allow retail investors access to hedge funds, or investments modelled along similar lines to hedge fund strategies.

In its response, AIMA stated that the majority of its members have no interest in retail access as most "do not need or want the perceived complications of dealing with retail money."

"In AIMA’s view, there are still misunderstandings regarding the risk inherent in certain hedge fund products or strategies," the response paper stated.

The paper went on to observe that:

"Funds of hedge funds, for example, would be a far ‘safer’ investment for a retail consumer than a UCITS III fund which invests in derivatives, particularly where the UCITS manager does not have the same depth of experience in these markets as some hedge fund managers.

"Having regard to the FSA’s statutory objective of consumer protection, and the possibility of confusion and mis-selling, AIMA believes that disclosure is the key. Such disclosure should be full, accurate and plain. Both the industry (distributors) and the regulator should share the role of educating investors about the aims or outcome of a product, rather than have regulation applied to the product itself.

"AIMA also believes it essential that intermediaries who may sell products to retail consumers fully understand the products they are selling."

Nonetheless, some of AIMA's members, mainly the large traditional fund management groups with experience in the retail market, have been developing more alternative strategies and are interested in further developments in the retail end of the spectrum.

"They have the necessary infrastructure and the interest in opening the market to certain hedge fund products, provided of course that the regime under which they would operate is appropriate," AIMA said.

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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