FSA to consider access for retail investors to hedge funds |
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Fri, 24 Mar 2006 19:25
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LONDON: Regulator the Financial Services Authority is considering allowing retail investors to invest in hedge funds. Investments that can be considered for the retail investors will include funds that invest in portfolios of hedge funds so that the risks can be spread out.
FSA's managing director for retail markets Clive Briault said retail investors now have access to products with hedge fund investment characteristics through a variety of means, including listed funds of hedge funds. They also have access to funds offered on the internet from European jurisdictions, products linked to hedge fund returns and funds launched under new European rules that allow limited use of financial derivatives.
In view of the current nature of the retail market, Briault said it is sensible to permit marketing of funds of hedge funds through an authorised, onshore vehicle.
Funds of hedge funds is a viable option exercised by institutions like pension funds in order to diversify risks. This has helped in part to almost double the global hedge fund assets to more than $1 trillion (580 billion pounds) since 2000.
The FSA says there are risks at the moment in the form of lack of understanding of the products, confusion over sales and distribution channels and problems as a result of marketing prohibitions on some unregulated funds.
The FSA will consult with financial firms early next year on marketing the hedge funds to the public.
Hedge funds usually rely on investment in derivatives as derivatives allow investors to speculate on the future price of shares and commodities without actually owning the item being speculated on. These can thus bring in big profit, but are at high risk.
According to analysts, the new proposals could result in sale of collective investments, such as unit and investment trusts, which own a stake in hedge funds.
Sources feel the retail market will be allowed access to those hedge funds, which tie up the investors' money for three months or less.
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