FSA proposes easier listing for hedge funds

FSA proposes easier listing for hedge funds

	Published : Fri, 31 Mar 2006 10:25 By : James Rowe Print this Story

LONDON: Britain's financial regulator the Financial Services Authority has mooted hedge funds to have publicly traded listings of funds. This will be a major policy shift enabling the alternative investing medium to come into the mainstream.

The FSA has brought out a consultation paper Thursday, which proposes that retail investors would be allowed to buy shares in individual hedge funds rather than in listed funds of hedge funds. It also proposes changes in rules regarding listed entities like curbs on short-selling stocks and use of synthetic investments, which earlier acted against listing of hedge funds.

FSA's managing director of wholesale business Hector Sants says the reforms in the listings rules would modernise the U.K. regime, "providing companies with greater flexibility over their investment strategies while maintaining strong disclosure-based investor protections".

Listed hedge funds are already in existence in the U.K., but these are required to adhere to several conditionalities, and the new proposal is likely to ease the restrictions.

The proposed changes will in the first instance allow private investors to buy shares in London-listed hedge fund-style companies. It will also allow unit trusts to follow investment techniques used by high-profile offshore hedge funds -- like selling shares they do not own in anticipation of buying them back cheaper at a later date. Restrictions now prevailing on funds taking short positions or investing in derivatives will be lifted so also prescriptive caps on the percentage of funds under management in a single asset.

In order to protect the investors, the FSA is insisting that companies should have sufficient working capital for 12 months and they should reveal how investment risks are being spread.

The FSA intends to look at the European Union's Transparency Directive, which is meant to improve capital market transparency across the region.

Sants said the FSA is asking market participants whether it should implement the directive's minimum requirements or if it should retain key features of the existing U.K. regime for financial reporting and shareholding disclosures.

According to investment experts, British rules are more stringent in some cases. For instance, the minimum level for disclosure of shareholdings is 3 per cent under British rules, while it is 5 per cent in the case of EU.