"Clients are sophisticated investors and existing disclosure in fund documents should be sufficient," according to AIMA.

That's the view of the London-based Alternative Investment Management Association (AIMA), which believes hedge fund managers should be exempt from the UK Financial Services Authority's new regulatory regime aimed at improving disclosure of commission arrangements to fund customers.

According to AIMA, the model under development is framed for pension fund interests, whose requirements and investment perspective are very different from those of hedge fund investors. The association has made a submission to the FSA requesting exemption for hedge fund managers on the basis that hedge fund managers' clients are "sophisticated investors" and the funds are generally "intermediate customers" and offshore, with the vast majority of ultimate investors being domiciled outside the UK.

The FSA itself recognises and acknowledges, in its financial promotions regime, that hedge fund interests are marketable only to sophisticated investors. And the FSA has also acknowledged that certain types of investment management firm and activity within the financial services industry might attract differential treatment and promised to give further consideration to the scope of proposed regulation.

Proper disclosure of execution and other expenses within commission arrangements provided to hedge fund clients - unlike pension fund investors - within offering documentation, management agreements and accounts should, AIMA says, be sufficient.

Any detailed disclosure requirements would be extremely onerous for smaller or "start up" hedge fund managers with minimal resources; their entrepreneurial skills have resulted in the enormous growth of the industry in the UK in the last six years - from USD 12 billion to USD 220 billion in AUM by alternative investment managers. Speedy and accurate market data and news services and equipment are essential tools in the investment decision-making process of most hedge fund managers, especially start ups. Excessive restriction of "softing" arrangements - founded on domestic pension fund investors' demands - would stifle the UK industry's creativity and competitive edge.

AIMA's full submission to the FSA is available at www.aima.org/uploads/FSASubCP176-17Dec04.pdf.

AIMA will not be making any further comment at this stage but will participate in further consultations as the FSA develops any rule changes affecting disclosure.