A note from Australia's Lexology reported on the Australian Securities and Investments Commission (ASIC) long-awaited changes to the definition of a 'hedge fund' (and 'fund of hedge funds') for the purposes of determining the application of the shorter Product Disclosure Statement (PDS) regime, and the application of enhanced PDS disclosure under ASIC Regulatory Guide RG240. The firm writes that the original 'hedge fund' definition was unclear and too broad which had the unintended consequence of capturing many types of funds that should not have be treated as hedge funds.
Alex Wise, Head of Fund Services at Select Asset Management comments: "Initially the definition was wide enough to catch many equities managers who consider themselves active or long only, the new draft has gone a long way to address some of these issues".
Lexology comments that the troubled history of this definition is reflected in the number of delays in its finalisation. "The shorter PDS regime applying to simple managed investment products commenced on 22 June 2012. At the last minute, ASIC issued interim relief to exclude 'hedge funds' from the application of the shorter PDS regime and to allow those 'hedge funds' that had prepared shorter PDSs until 22 June 2013 to transition back to a long form PDS."
Wise says: "For many years disclosures of hedge fund strategies to retail investors have fallen significantly below what is disclosed offshore. The additional disclosure is good news for retail investors who want to allocate to hedge funds. The disclosures encompass many standard disclosures that offshore funds include, including some very simple things like "who is the administrator".
The transition date had to be extended to 1 February 2014 as it became clear that the original definition of 'hedge fund' was too broad and unworkable. ASIC has since consulted significantly and widely with industry to refine the definition. It is intended that that the re-worked definition of 'hedge fund' will allow the more accurate targeting of the types of funds which pose more complex risks for investors. As ASIC Commissioner Greg Tanzer stated, "Our changes will benefit the industry by relieving some lower-risk funds from the more extensive disclosure obligations imposed on a hedge fund."
"ASIC have done a pretty good job, there's still some strange guidance such as; if you mention the word "hedge fund" anywhere in any marketing materials you are automatically a hedge fund! But on the whole the disclosure will be welcomed by retail investors" Wise says.
Aussie law firm Hall and Wilcox has published a table listing the principal differences between the old and new definition. Source.
Wise concludes: "There is still a strong market for retail hedge funds in Australia due to sophistication at certain advisors and planners. The key factor for offshore managers wishing to set up in Australia will be working with experienced partners in retail alternatives".
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.