![]() Specifically, hedge funds are restricted under Regulation D under the Securities Act of 1933 to raising capital only in non-public offerings and only from “accredited investors,” or individuals with a minimum net worth of $1,000,000 or a minimum income of $200,000 in each of the last two years and a reasonable expectation of reaching the same income level in the current year. Hedge funds are subject to the same trading reporting and record-keeping requirements as other investors in publicly traded securities. They are also subject to a number of additional restrictions and regulations, including a limit on the number and type of investors that each fund may have. Coordination, cooperation, and sharing of information between regulators further strengthen the effectiveness of the supervisory framework. Prudential oversight of regulated financial counterparties, such as prime brokers and banks, provides supervisory authorities with the information they need to monitor the build-up of risks at the level of the funds. Hedge Fund Regulations and RequirementsĪ consistent, global approach to hedge fund manager registration requirements and an industry-standard set of self-regulatory best practices form the foundation of an effective regulatory framework for hedge funds. Hedge fund managers should provide full transparency to investors over the use of any valuation models. Hedge fund assets and liabilities should be valued according to generally accepted valuation policies and procedures. This provides fund investors with assurance that the information on which they base their decisions is accurate and reliable. Periodic review of hedge fund disclosures by independent service providers verifies that the fund in question is adhering to accepted standards of presentation and performance calculation. ![]() Transparency enables investors to properly evaluate their holdings in the fund, and enables supervisors to monitor for the build-up of risks. Hedge fund investors and regulators require disclosures that detail key information on the funds managed. Funds of hedge fund managers should also put in place policies and procedures to manage the liquidity risk of the fund so that fund investors do not suffer undue difficulty when redeeming their units. Robust due diligence on the part of the investment manager in selecting which funds to invest is a key component in protecting investors' interests in these products. Hedge funds that are marketed to retail investors should provide a high degree of product transparency to protect investors’ interests.įunds of hedge funds provide a cost-effective means by which investors can gain exposure to the underlying performance of hedge funds. It is likely that many hedge funds are not suitable investments for small or retail investors, who typically lack the means to fully understand the nature and risks of investment in hedge funds. These types of investors are best placed to make their own determinations regarding the suitability of hedge funds. Investment in hedge funds is most suited to sophisticated and/or institutional investors who typically have sufficient means, expertise, and capacity to obtain a full appreciation of the risks. The industry saw about $70 billion in outflows in 2016. The global hedge fund industry ended 2016 with approximately $3 trillion in global assets under management, up from approximately $2.9 trillion in the prior year, according to data released by Hedge Fund Research Inc. The Asset Manager Code provides a set of globally applicable ethical and professional standards for firms managing assets, including hedge funds. Hedge fund regulation varies widely around the world in several key jurisdictions (including the United States) such funds are relatively lightly regulated.Hedge funds may concentrate their investments, employ leverage, or engage in other strategies that may offer potential for higher returns but may also pose additional volatility or risk. ![]() ![]() Hedge funds are extremely diverse in structure, employing a great variety of investment strategies.Most hedge funds are not widely available to the public directly.Highly publicized reports of both disastrous and wildly successful hedge funds don’t always make it readily apparent how volatile a given hedge fund strategy may be. The term hedge fund is something of a misnomer: While some funds may employ strategies that are “hedged” in the traditional sense to mitigate or reduce risk, others may not hedge exposures or employ hedging techniques.īy simple definition, hedge funds are pooled investment vehicles that can invest in a wide variety of products, including derivatives, foreign exchange, and publicly traded securities. ![]()
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