THE proposed overhaul of rules covering investment funds could lead to the formal regulation of some hedge funds in the UK and will bring big savings to the fund management industry, analysts claim.
The Financial Services Authority’s proposals will loosen regulatory requirements for funds used by institutional investors, and this could lead to a raft of new products.
“Quite a number of types of hedge fund could come in,” said Julie Patterson, director of regulation, operations and tax at the Investment Management Association.
In addition to hedge funds, fund managers will be able to set up authorised property funds and equity and bond funds which do not comply with European Union investment rules, Ms Patterson said.
This is likely to attract big asset flows from institutional investors such as insurance and pension funds which can only invest in authorised investment vehicles.
Looser rules for institutional investors will bring big savings as well as new business opportunities – welcome news for an industry squeezed by a three-year bear market in equities and struggling to cut costs.
FSA spokesman Rob McIvor said: “We have taken out about 40 per cent of the rulebook. It is quite a deregulatory move.”
But he questioned whether hedge funds would look at launching authorised products. Short selling – borrowing shares and selling them in the hope of buying them back at a lower price – is a major strategy used by hedge funds but this will not be allowed.
Mr McIvor said: “We are not sure whether the new rules will appeal to hedge funds – it is not quite bringing hedge funds onshore.”
The FSA is also mulling over a change in reporting requirements, saving the industry around GBP 10 million annually and allowing performance-related fees for funds.
