FSA to Consider Fund of Hedge Funds for Retail Investors

In a very important move, UK Financial Services Authority plans to consult on allowing the sale of a fund of hedge funds to retail investors, according to FSA Chair Callum McCarthy. While the form of consumer protection for such funds has not been decided, he noted, it is unlikely to involve any substantial constraint on the investment strategy that the fund managers can pursue. Instead, regulators will concentrate on structural questions, such as the functional separation between the manager of the fund and the custodian, or the pricing of the fund. The FSA may also establish principles governing the due diligence that the managers of the authorized funds should carry out in selecting the hedge funds in which they invest. It is anomalous for UK investors to be prevented from investing in an authorized fund of unregulated schemes, reasoned the chair, when the amended EU UCITS Directive authorizes collective schemes to invest more freely in derivatives.

In remarks at the European Money and Finance Forum, the regulator also called for greater transparency for hedge funds. Retail investing in hedge funds has been an extremely hot issue for some time now. The concept attracts the attention of both regulators and legislators. The U.S. Congress is looking into this aspect of hedge fund investment.