FSA to review regulation of hedge funds

Hedge funds could become more accessible to UK retail investors following a Financial Services Authority (FSA) statement saying current restrictive selling rules are to be reviewed.

Under current FSA rules, hedge funds cannot be directly marketed to the UK public. But Michael Folger, the FSA’s director of conduct of business standards, said he wants to know if this is the right balance. "Is there scope to make the hedge funds more accessible?" he queried

The FSA has published a discussion paper asking industry and consumer groups for comments on the current controls on selling and marketing of hedge funds in the UK. It is also seeking comments on the regulation of UK-based fund managers who manage offshore hedge funds, and the FSA’s approach to monitoring the effects of hedge funds on UK markets.

“We come to this with an open mind,” said Folger. “The hedge fund market has grown significantly in recent years, as increasing numbers of wealthy investors and trusts have decided to place a proportion of their portfolio in ‘alternative’ investments.”

The FSA said that although a change of rules on the sale and marketing of hedge funds could increase the product choice available to UK investors, it also raises consumer protection and education issues. “In particular, there are legitimate concerns about the information provided by hedge funds about their activities and risk profiles,” the FSA said.

The comment period closes on November 29.