FINANCIAL SERVICES & PENSIONS: Growing hedges.

(From The Lawyer)

With the prospect of hedge fund listings arriving on our shores, regulators want less potential for conflicts and wider access for mainstream retail investors. By Jonathan Herbst

Hedge funds have become increasingly important in global financial markets in recent years. In its report 'Financial Risk Outlook 2006', the Financial Services Authority (FSA) noted that London is the leading centre of hedge fund expertise in Europe and estimated the amount managed by local fund managers at more than GBP120bn. The FSA also estimates that there are more than 300 specialist hedge fund managers and more than 100 mainstream asset managers managing funds using hedge fund-style techniques.

As another sign that hedge funds are moving into the mainstream, the FSA recently proposed changes to the Listing Rules that would allow hedge funds to list in the UK for the first time. At the same time, there have been calls to allow wider access to hedge funds for retail investors than the regulatory regime currently allows.

The regulatory concerns

A number of commentators have expressed concern that some hedge fund managers may be pushing the limits of acceptable market practice in relation to, say, trading based on non-public information, and that compliance procedures within hedge fund managers are weak.

Their concerns will not have been allayed by the news that, earlier this year, the FSA fined hedge fund manager GLG Partners and its former trader Philippe Jabre GBP750,000 each for alleged market abuse. Jabre is appealing against the FSA's findings to the Financial Services and Markets Tribunal, while GLG had previously denied any wrongdoing.