Sharechat.co.nz – The increasing retail participation in hedge funds either directly or through pensions funds, is worrying sharemarket regulators around the world, says Jane Diplock, the chairwoman of New Zealand’s Securities Commission.

Diplock, who also chairs the executive committee of the International Organisation of Securities Commission (IOSCO), told a conference in Mumbai that regulators around the world were trying different ways to regulate the fast-changing hedge fund industry and bring in more transparency.

“Hedge funds” are investment funds that use securities, instruments, or futures contracts to try to reduce market risk, such as when an option fund uses futures contracts on stock market indices and short sales with stock options to limit risks. But selling short — the sale of securities a fund does not own to capture an expected drop in in the price of that security — can carry its own risks for investors.

Diplock said about 8000 hedge funds handled US$1 trillion worth of assets across the globe, but a key problem was their “opaqueness”, The Hindu newspaper reported. She said that though in the United States the regulators had made it mandatory for hedge funds to register themselves with the Securities Exchange Commission, this did not guarantee transparency.

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