Hedge Funds | Hedge Fund Regulations Guide 101

The popularity gained overtime and the crowd growing industry investors in hedge funds has increased the need for greater regulation in the hedge fund market.

Hedge funds are very similar to mutual funds except that there is less regulation of hedge funds. As a result of hedge funds requires a much larger investment. Hedge funds are very reluctant, ie they are private, between individuals, and not have to be made known to the government or other companies. This allows hedge funds to be free of regulations that mutual funds must comply. Because of this big business move undisclosed amounts of money and earn a lot without realizing the authorities. The proprietary nature of hedge funds makes them look suspicious and leads many fears in the minds of investors, for example, these funds are not ethical, speculative and risky. In addition, its high price and the extravagant amount of money needed for their initial purchase suggests that investors are hood winked to put money in these funds. Only by ensuring high standards of transparency in the functioning of the hedge fund industry for an investor to know exactly where your money goes can clear these fears.

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On the other hand, produce better regulation of funds of funds managers more accountable in the future and investors may simply research the background of a hedge fund manager before committing their money in their hands.

Another negative aspect of not regulating hedge funds is that no official statistics of fund coverage. Most hedge fund holders are big business and therefore, little is known about their financial transactions. Hedge funds based in offshore jurisdictions, making them look even more suspicious. For example, unlike mutual funds that have a base in large cities like New York, hedge funds are based in places like Bermuda, Cayman Islands and the Virgin Islands.

Hedge funds also have a higher failure rate than traditional funds. Many of them by the second or third year of operation. It has been estimated that about 5.7% of existing hedge funds in 2005 closed 8500. This vulnerability to rapid falls that can be harmful and can lead to sudden losses can be reduced with the help of the regulations.

In London, the techniques used to hedge funds operating out there are concerned with the Financial Services Authority. Therefore, to check the performance of this industry, the FSA has decided to start regulating hedge funds and their managers. In addition, a special unit of hedge funds has been established to determine how the coverage of London fund industry has been estimated at 500 million dollars can be better controlled.

However, the Canadian Securities Administrators, which is the umbrella organization of the committees of Canada 's provincial securities has decided that current rules for investment vehicles are sufficient to regulate the burgeoning Canadian industry of hedge funds (an industry $ 30 million). This means no additional rules and regulations established specifically for hedge funds in Canada.

Thus, appropriate regulation in place, the clouds of suspicion and uncertainty looming over the hedge fund industry clearly and undoubtedly pave the way for a hedge fund market much more secure would attract more investors.