Thursday, May 24, 2012

What are the regulations regarding hedge funds in other countries besides the U.S.? - Healthcor Joseph Healey


Hedge funds have definitely gone global. While America is one of the “hubs” or financial centers for hedge funds and other types of investments, the international market has seen the lucrative promise of hedge funds, and jumped on board. Additionally, many Americans have seen the benefits of holding offshore hedge funds, and that brings an entirely new dimension to the subject of hedge fund regulation outside of the United States. With so many domestic individuals seeking international hedge funds because of their different laws and regulations, it can complicate matters.

Offshore hedge funds are perhaps the most popular “destination” for this type of investment. There are a few reasons for this; one is that there are no universal requirements for “accredited” investors as there is in the US. Another reason is the structure of offshore hedge funds themselves; they are structured as corporations/companies rather than limited partnerships. What this means for offshore hedge funds is that there is virtually no limit to the number of potential investors, whereas in America, there are strict regulations in place with regards to that. However, there is a “hang up” to Americans investing in offshore hedge funds – they are only legally permitted to do so if they have established offshore life insurance, or established an offshore trust. The popular offshore locations include the Cayman Islands, Dublin, Luxembourg, Bermuda, and more.

Singapore is fairly loosely regulated, especially in comparison to Hong Kong and other Asian financial centers. Smaller funds will continue to be able to operate without licensing even as their regulations and rules change. In Hong Kong, the regulatory structure of hedge funds is very similar to that of mutual funds. In India, the Securities and Exchange Board of India (SEBI) decided to place a ban on any investments made by unregulated companies/entities with participatory notes. 

The European Union is a big center for hedge funds, and they have their own set of rules and regulations. They are not too dissimilar to regulation within the United States, choosing to focus on the regulation of money managers. The FSA (Financial Services Authority) in the United Kingdom requires that fund managers register and become authorized, adhering to the FSA’s regulation. As there are many countries within the European Union, and each has their own set of regulatory laws, having cohesive legislation for the whole EU is difficult. However, with the passing of AIFMD, the EU is one step closer to being able to regulate hedge fund managers all across the board.

However, it should be noted that the Dodd-Frank Act from the US will affect overseas hedge fund investments. Any hedge funds with more than fifteen American investors, and with twenty-five million dollars or more, must register with SEC. Some international funds, especially in Asia, had already registered with the SEC prior to the act, but this act ushers in a whole new era of international hedge fund regulation.
It does seem as though there is a shift internationally to increase regulation on hedge funds, but thus far it has not been overwhelming.

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