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Last Updated: Tuesday, 27 March 2007, 13:54 GMT 14:54 UK
FSA plans more hedge fund access
George Soros
George Soros is still the most well known hedge fund manager
People in the UK will find it easier to invest in hedge funds, under plans from the Financial Services Authority (FSA).

The FSA is consulting on a proposal to let investors put money directly into "funds of hedge funds" based in the UK.

Private UK investors can already invest in foreign hedge funds, or buy shares in hedge funds management firms that are listed on the London stock market.

The FSA says these are not necessarily more dangerous than other investments and can help investors spread risk.

"What we are proposing is to lift a ban we have at the moment on 'funds of hedge funds' being located or authorised here in the UK," said Dan Waters of the FSA.

"It just doesn't make sense any more," he added.

Under current regulations UK-based hedge funds are not authorised to market themselves to the general public.

Bad idea?

Roger Lawson of the UK Shareholders Association said the suggested change might be a bad idea.

"Whether private investors will understand what they are getting into if they are allowed to invest in hedge funds is, in my view, rather doubtful.

"Some hedge funds simply take big gambles," he added. "They hope these are more successful than unsuccessful - and some are and some aren't."

The FSA said that if its plans go ahead then investors would have the normal safeguards for other investments, with funds being obliged to treat their customers fairly and advisors having to give suitable advice.

The funds would also be obliged to hold investors' money independently, and have the underlying assets valued independently.

Private companies

According to supporters of the plan, allowing people to invest in authorised "funds of funds" would let private investors put money into a collection of individual funds, thus spreading the risk.

The FSA regards this as the best way to allow private individuals to invest not only in hedge funds but also other forms of alternative investments.

Hedge funds, which have developed rapidly in the UK over the past few years, are mainly independent investment companies, usually investing the money of very rich individuals or professional investors such as pension schemes.

Their appeal lies in the supposed skill of the managers running the funds, and they typically levy high charges.

The conventional view of the industry is that although hedge fund investments can make a lot of money, their strategies can be complex, opaque and difficult to understand.

In the past, that has been the attitude of the FSA.

However, the regulator now acknowledges that hedge funds have become such an entrenched feature of the international investment scene that it is impossible to try to stop the public getting access to them.


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