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Alternative Market Briefing

Alexandre Col, F.S. Lhabitant advocate intelligent diversification in FoHFs

Wednesday, December 09, 2009

From the Opalesque team:

Commenting on the Swiss market regulator Finma's decision to suspend distribution of FoHFs to the retail market, Alexandre Col, director of Investment Fund Department at Geneva's private bank Edmond de Rothschild, told Swiss daily Le Temps on Monday that regulators should reformulate questions posed by the public, leave some out and elaborate others.

The first should be about how to avoid another 2008 crisis. The pitfall here is that of over-regulation. Col used the metaphor of a beach: "A beach can be protected against a tsunami with a cement wall, but as a consequence, the beach won't be so attractive." In the same way, over-regulation can kill by wanting to protect too much. The political players and the public must recognise that financial investments present an intrinsic risk and are liable to exogenous risks - which are not part of the regulator's responsibility. The second pitfall would be bad regulation.

Col believes that some rules should be applied, should FoHFs wish to access public money, such as: no leverage allowed; access to credit worth 10-15% of assets in order to be able to meet redemption requests; diversification over 15 underlying funds minimum - with a maximum exposure of 20% each; and at least 60% of assets must be invested in hedge funds with a maximum 3-month liquidity term.

Francois-Serge Lhabitant CIO at Kedge Capital Fund Management (Jersey), and professor of Finance at EDHEC Business School (Fra......................

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