FSA says institutions should beware hedge fund risks

October 12, 2005
By Pratima Desai
Reuters, UK

Institutions such as pension funds should carefully check out the hedge funds they invest in and understand that they may be risking their capital if a fund collapses, the Financial Services Authority said. Tom Huertas, the FSA's head of wholesale bank regulation, said at the Reuters Corporate Finance Summit that hedge funds were a positive development in financial markets and they broadened investment options for institutions. "In terms of what's called a blow-up...we expect institutional investors to be professional buyers and to do their own due diligence and...recognise that they are at risk for the entire amount of their investment," Huertas said.

In its June discussion paper, the FSA outlined some of the risks hedge funds pose to financial markets, including erosion of confidence, disruption of liquidity and challenges in valuing portfolios. "We have a discussion paper indicating some reservations about hedge funds being sold to individual investors," Huertas said at the Summit held at Reuters headquarters in London...

The FSA's June discussion paper can be found here (PDF). The hedge fund industry was given until the end of October to provide comment ont he paper.

The full Reuters article is located here. Many thanks to the always interesting Hedge Fund Street for the link.

-- MDT

Labels: Financial Services Authority