Towry Law affair raises red flags for those seeking alternative investments for their portfolios
The recent scandal involving two hedge funds sold to Hong Kong investors by independent financial advisers Towry Law International raises a number of red flags for those looking to add alternative investments to their portfolios.
The two Hong Kong-based funds, managed by defunct Asia Financial Asset Management, lost almost all of their investors' money. They were not authorised for sale to the general public by the Securities and Futures Commission (SFC).
Instead these funds, along with many other successful funds, were sold via Hong Kong's network of about 1,100 SFC-authorised investment advisory firms and the 13,000 individuals who are able to recommend a wider range of investment products to their clients.
This dual system of distribution has created a two-stream hedge-fund market. The authorised retail hedge-fund market, rigorously regulated by the SFC, was launched in February 2002. To date, just eight funds have been approved for sale to the general public by the fund-market regulator.
The slow handling of applications to launch products, along with stringent demands about the way the products are structured, has brought criticism upon the SFC from some quarters. Some providers have dropped their applications while those who persevered tended to be the larger ones.