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- U.K. retail funds expected to get green light to invest in hedge funds by end of 2007
- Retail schemes will be permitted to invest 100 percent in alternative investment funds
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The FSA has issued proposals introducing a new category of funds known as Funds of Alternative Investment Funds (FAIFs) aimed at retail investors. The introduction of FAIFs will bring the UK into line with other jurisdictions such as France, Germany, Italy and Ireland where retail funds of hedge funds are already permitted.
FAIFs will be accommodated within the existing non-UCITS Retail Scheme (NURS) regime; the FSA does not intend to introduce a separate regime for FAIFs, which will be subject to existing NURS rules.
Currently, NURSs are only able to invest up to 20 percent of scheme property into unregulated funds (including hedge funds). The FSA now proposes that this limit should be relaxed, allowing investments up to 100 percent, effectively giving the green light to regulated (i.e. retail) funds of hedge funds.
The FSA is not proposing to permit FAIFs to use greater leverage that currently permitted under NURS rules (in NURS and UCITS schemes, borrowing must not exceed 10 percent of the value of the scheme property). As a matter of due diligence, FAIF managers will also have to assess disclosure of any side letters they receive.
The FSA consultation has just ended and the new rules are expected to be finalised by the end of this year.
For more information, click here: FSA Consultation Paper: Funds of Alternative Investment Funds.