Participation in high-risk, high-return hedge funds should not be restricted to professional investors, according to leading figures in the investment industry. The Securities and Futures Commission may allow trading in hedge funds by retail investors later this year and is seeking industry feedback on whether a minimum level of investment should be set. Matt Dillon, the Asia-Pacific group manager of Swiss-based hedge fund operator Man Investment Products, said the minimum investment should be set at US$20,000. 'A minimum investment requirement would be a good starting point for hedge funds to be introduced in Hong Kong, but the level of such a requirement should not be too high,' Mr Dillon said. 'We feel that a minimum individual investment amount of US$20,000 is a very fair and relevant amount and it would mean that investors do not need to invest more than is optimal.' Under existing rules, hedge funds are available to professional investors such as pension fund managers and insurance companies but not the general public - retail investors. There are fears retail investors may over-commit to the risky hedge funds. The trend worldwide is for investors to turn away from traditional fund products and look at aggressively managed hedge and other funds where returns can be higher. If the SFC set the minimum investment level too high, investors would be denied legitimate choice, Mr Dillon said. As a result many would be forced to allocate more of their savings than they might otherwise choose. Another hedge fund expert, German-based Allianz managing partner Johan Ahlstrom, said that in many countries, regulators used a minimum investment requirement to ensure only sophisticated investors traded in hedge funds. 'The SFC should not set a bar too high to ban the majority of retail investors from buying hedge funds,' he said. The risks associated with hedge funds might not be much higher than investments in individual stocks. While some hedge funds adopted an aggressive investment strategy, some were investing more conservatively. He cited the so-called 'funds of funds' which investd in baskets of funds as a means of diversifying risk. 'The funds of funds have relatively lower risks than the single hedge funds because they spread the risk,' Mr Ahlstrom said. Mark Konyn, chief marketing officer in Asia of Dresdner RCM Global Investors, said: 'Hedge funds are a new concept to Hong Kong investors. It would be appropriate for the SFC to put regulations in place that ensure only investors with better investment knowledge and capital can invest.' He believes retail investors would like to invest in hedge funds when the SFC allows it.
