Four fund houses have withdrawn applications to offer hedge funds to retail investors, according to Securities and Futures Commission (SFC). This comes a blow to the commission, which issued guidelines authorising retail hedge funds in May last year to develop the products in Hong Kong. An official from a British trust company said the applications were withdrawn because the commission took a strict approach to the approval process. 'Besides the withdrawals, some investment companies had wanted to launch retail hedge funds but they did not submit applications for fear of the complicated application process,' he said. 'It is also because the outbreak of Sars has weakened investment market sentiment.' Just five retail hedge funds have been launched since last year: two offered by HSBC and one each from JF Funds, Invesco and French house Permal. The SFC did not identify which fund houses withdrew their applications, but said among the four withdrawals, three of the funds had failed to comply with regulatory requirements. The remaining application was withdrawn because the fund house wanted to change its investment strategy for its hedge fund. SFC director of investment products Tina So said: 'The SFC would not be serving the interests of the public if issues of non-compliance were ignored when processing fund applications. 'Hedge funds are a new asset class for the retail public. Hedge fund managers who are used to serving the private or professional market must be prepared to modify their products to meet regulatory requirements when targeting the retail public.' The commission said 31 funds applied for authorisation last month, up 41 per cent from a year earlier. But it did not disclose the number of hedge fund applications awaiting approval.