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AIMA Urges Retail Access to Funds of Hedge Funds

Date: Friday, June 13, 2008
Author: Bill McIntosh, Senior Financial Correspondent, Hedgeworld.com

 LONDON (HedgeWorld.com)—The Alternative Investment Management Association has urged the U.K. Financial Services Authority to allow funds of hedge funds to be made available to retail investors.

The move comes as a formal response to the FSA's consultation on the matter. AIMA has worked with the FSA on developing the regulatory environment for funds of funds since 2006 and has also submitted its response to HM Treasury's related tax framework document for an appropriate tax regime.

"AIMA is encouraged by the FSA and HM Treasury's latest recommendations to enable U.K. retail investment in funds of alternative investment funds (FAIFs)," said Andrew Baker, deputy CEO of AIMA in a statement. "On the whole, the proposed rules are appropriate and proportionate, and a strong signal from the U.K. government that hedge funds are to be regarded as mainstream investments."

AIMA said the FSA should reconsider some of the restrictions it is proposing for the use of notice periods and of leverage with funds of funds. The industry group said these rules are unworkable in their current form; potential difficulties in the areas of illiquid instruments, repayment standards and liability of the manager in master/feeder fund structures are also foreseen. It added that the combined effect of the restrictions will cause managers unnecessary difficulty and restrict funds of funds from being a popular form of investment.

AIMA has urged HM Treasury to make the tax regimes covering funds of funds and offshore funds consistent and compatible, given the likelihood that the underlying funds will be based offshore. It expressed the view that the proposed regime does not present enough commercial incentive for existing offshore funds of hedge funds to move onshore.

Other discrepancies AIMA has indentified include the current tax regime proposals relating to the treatment of investment returns as capital gains or income. AIMA is also urging the FSA to set up a grace period regarding rules governing diversity of ownership.

"In AIMA's opinion, there remain important areas to be refined before the regime is likely to be workable and successful for both the industry and the intended retail investors," Mr. Baker said. "However, we are confident that considerable progress towards a successful outcome is being made, and we will continue to support the FSA in this process."