The Alternative Investment Management Association (AIMA), has made a further submission to the UK’s Financial Services Authority (FSA) concerning Soft Commission and Bundled Brokerage Arrangements. AIMA has said that hedge fund managers should be distinguished and exempted from a UK regime requiring improved disclosure of commission arrangements to fund customers.
The industry model under development is framed for pension fund interests, whose requirements and investment perspective are very different from those of hedge fund investors, according to AIMA. AIMA maintains that hedge fund managers’ clients are “sophisticated investors” and the funds are generally “intermediate customers” and offshore, with the vast majority of ultimate investors being domiciled outside the UK.
In its statement, AIMA notes that the FSA itself recognises and acknowledges, in its financial promotions regime, that hedge fund interests are marketable to only sophisticated investors. AIMA also notes that the FSA has also acknowledged that certain types of investment management firm and activity within the financial services industry might attract differential treatment and promised to give further consideration to the scope of proposed regulation.
Proper disclosure of execution and other expenses within commission arrangements provided to hedge fund clients – unlike pension fund investors – within offering documentation, management agreements and accounts should, AIMA says, be sufficient.
Any detailed disclosure requirements would be extremely onerous for smaller or “start up” hedge fund managers with minimal resources; their entrepreneurial skills have resulted in the enormous growth of the industry in the UK in the last six years – from $12 billion to $220 billion in AUM by alternative investment managers, according to AIMA.
Speedy and accurate market data and news services and equipment are essential tools in the investment decision making process of most hedge fund managers, especially start ups. Excessive restriction of “softing” arrangements – founded on domestic pension fund investors’ demands – would stifle the UK industry’s creativity and competitive edge, AIMA says.
AIMA’s full submission to the FSA is available at http://www.aima.org/uploads/FSASubCP176-17Dec04.pdf.
AIMA will not be making any further comment at this stage but will participate in further consultations as the FSA develops any rule changes affecting disclosure.
Founded in 1990, AIMA is a not-for-profit global trade association with 800 corporate members (comprising over 2,600 individuals) in 43 countries. AIMA focuses specifically on hedge funds, managed futures and managed currency funds. AIMA’s membership includes fund of funds managers, institutional investors, hedge fund managers, prime brokers, exchanges, fund administrators, auditors, lawyers and other specialist service providers.