9 February 2011

UCITS III Hedge Funds - don't be blinded by the label

Ordinary investors already have enough trouble understanding what hedge funds do, how they are structured and what risks they face when investing in them. So the well-meaning improvement in transparency that regulators and their political pay-masters have intended by releasing the new UCITS III regulations may well be lost on ordinary mortals. But the danger is that a new label can blind investors to the still substantial risks hidden in hedge fund structures as these funds are more lightly regulated than ordinary investment funds. The recommendation by market insiders that investors just have to be more careful and do more analysis of risks is missing the point as the recipients of the advice are simply not able to do this sort of analysis. Using advisers instead just means pushing the can down the road as one risk is substituted by another one: now the investor is supposed to know which adviser to select and basically to put his trust in him and hope for the best.