For immediate release: Thursday 5 December 2002

IMA RESPONDS TO FSA ON REGULATION OF HEDGE FUNDS

The IMA today released its response to the FSA’s Discussion Paper 16  “Hedge Funds and the FSA”, which sought views on UK regulation of the management and selling of hedge funds.

Summing up IMA’s response, Julie Patterson, IMA’s Director of Regulation and Tax, said:

“This is a timely and welcome contribution by the FSA to an important debate.  We believe the key questions to be addressed are:

• the demand for regulation to provide for onshore hedge funds which can be sold to retail investors

• alternatively, the demand from non-retail investors

• how the tax regime needs to be addressed in order to make the UK an attractive domicile for hedge funds.

“Many of our Members run hedge funds, and Members invest in them on behalf of their institutional and private clients, although all hedge funds are currently registered offshore.  IMA represents both institutional and retail investment managers, and there is undoubtedly a range of views in the industry about these issues.  But the facts are that hedge funds are here to stay and that other financial centres are introducing regulations allowing certain types of funds to be sold to retail investors.

“IMA believes it would be premature to allow a wide range of hedge funds to be authorised now for sale to retail investors, but there is increasing demand from institutional investors and private clients, to which the UK should respond.  Various aspects of the current regulations need to be amended.  But before funds establish onshore, significant reform of the tax regime will be required.  We will actively pursue these issues with the FSA and Inland Revenue.”

Tax

In its response IMA notes that any discussion of the regulation of UK hedge funds will remain academic unless there is significant reform of the tax regime, since funds will otherwise have no incentive to come onshore.  IMA highlights a number of obstacles.  In particular, it must be made clear that capital gains will not be taxed at fund level, irrespective of the fund’s investment style and strategy.  Moreover, as long as the Government applies SDRT to funds, and precludes investors from rolling up income tax free until disposal and insists on unnecessary withholding taxes, the UK will continue to be at a disadvantage.

Attachment 1 - Final Response

Attachment 2 - Final Answers

For further information, please contact: 

Julie Patterson, Director - Regulation and Tax, IMA, 020 7831 0898

Clare Arber, Head of Communications, IMA, 020 7831 0898 

Notes for Editors 

65 Kingsway London WC2B 6TD 

Tel: +44 (0) 20 7831 0898 Fax:+44 (0) 20 7831 9975 

www.investmentuk.org 

Investment Management Association is a company limited by guarantee registered in England and Wales Registered number 4343737.  Registered office as above.