Regulation of hedge funds does differ when taken outside of
the boundaries of the United States. However, much of the regulation on hedge
funds throughout the world does resemble the regulation in the US. In Europe,
for example, the primary method is to regulate the financial advisors/managers
of the funds. The managers are required to register with the FSA (the Financial
Services Authority). Within the European Union, there have been some
differences with regulation between different countries, but the hard and fast
rule is that EU fund managers are required to register.
Recently, something called the Directive on Alternative
Investment Fund Managers, or AIFMD, was passed by the EU to better monitor the
activities of hedge fund managers. Countries within the EU are required to
adopt the practices of AIFMD by 2013. It is quite an undertaking for every hedge
fund manager within the European Countries to comply with the regulations in
AIFMD, but AIFMD has made certain allowances to make the transition easier. For
example, they have introduced a sort of passport that enables any hedge funds
authorized in a country in the EU to operate throughout the entire EU.
Obviously Europe is not the only place aside from the United
States that participates in hedge fund activities. An incredibly popular option
for those abroad, and even for a portion of American citizens, is to run the
hedge funds through offshore locations. This includes Bermuda, the British
Islands, Dublin, the Cayman Islands, and many more locations.Any hedge fund
that is run through an offshore location has to comply with the individual
regulations there. Offshore hedge funds are quite different from other types of
hedge funds; one example of this difference is the fact that the funds are
valued as net asset value (NAV), not as account balances as with domestic
funds.
In South Africa, registration with and approval from the
Financial Services Board (FSB) is required for hedge fund managers. Also in
South Africa, much emphasis is placed on local investment rather than
international. In Singapore, hedge funds are less regulated and have fewer
licensing requirements than other Asian hedge fund “hot spots,” such as Hong
Kong. Singapore is a popular hedge fund location for this reason.
Recently, the Dodd-Frank Act was passed in the United
States. This act has wide reaching implications and may change the nature of
hedge funds throughout the world. Those international hedge funds that have
more than twenty-five million dollars with fifteen or more American managers or
investors must register with SEC. Managers who are registered with SEC are also
required to file and keep information about managed assets up to date with the
SEC as well.
This is only the beginning of overseas regulation for hedge
funds. However, it illustrates that there is still a focus on regulating
investment managers rather than the investments themselves. Hedge funds are
popular globally, and there is a good amount of cross over investment from
countries with financial hubs. Some seek to take advantage of the opportunities
presented by offshore accounts, but new regulation may be changing some of that
activity.
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