The Securities and Futures Commission has called on institutional investors to press for transparency in the hedge fund industry, saying investors should adopt a more discerning approach to certain funds. 'Some of the recent hedge fund frauds indicate upfront due diligence is important,' SFC chairman Martin Wheatley said. Mr Wheatley told a hedge fund conference yesterday that the yuan revaluation had sparked enormous interest in the region and Asian stocks could expect more hedge fund activity. His concerns coincide with the recent aggressive bid by the Children's Investment Fund Management for a 17.95 per cent stake in the Link Reit and a large chunk of New World Development. While urging discipline on the hedge funds, long regarded as the cowboys of the investment community, Mr Wheatley admitted they were a major source of liquidity in the market. 'They are now totally different from the time when we were in the Asian financial crisis. Hedge funds then played a valuable arbitrage role in reducing mispricing in financial markets,' Mr Wheatley said. According to the securities watchdog, more than 50 hedge funds, including those from Britain and Europe, plan to set up in Asia-Pacific. The most popular base for new Asian hedge funds is Hong Kong, followed by Australia, Japan and the United States. Based on information from AsiaHedge, about US$3.5 billion of hedge funds invested in Asia-Pacific in the first half of this year. Of this amount, US$1.3 billion came to Hong Kong, pushing the city ahead of Japan, the US, Britain and Singapore. Aiming to be the financial and wealth management centre in Asia, Hong Kong is working to lower its entry thresholds for certain funds, including passing a bill that will grant profit tax exemption for offshore funds.