Last week Jersey Finance, the Channel Island's industry promotional agency, reported that 26 Unregulated Funds had been established in the nearly seven months since the introduction of the new regime, which industry members hope will come to be viewed by hedge fund managers as a European alternative to the extremely lightly regulated funds domiciled in the Cayman Islands.

The launch of Jersey's unregulated funds, which are either aimed at sophisticated investors or already regulated through listing on a recognised exchange, comes at an interesting time. Much of the reaction to the role, such as it is, of hedge funds in the ongoing market meltdown is that they should be subject to more regulation, not less.

Jersey's fund industry points out, not unreasonably, that unregulated funds are aimed at institutions and high net worth individuals that know what they are doing, and that anyone investing in something labelled an 'unregulated fund' should have at least an inkling that they are not, in fact, subject to regulation. Nor indeed even an audit, unlike Cayman funds, arguably it should be up to investors to decide whether they need the comfort of an audit in order to invest in a fund. In any case, unregulated funds are free to obtain an audit anyway.

But in these turbulent times, will investors feel comfortable about a fund completely free of regulation? Again, lawyers point out that if its manager is based in the UK, as most European hedge fund managers are, they will be themselves subject to regulation from the Financial Services Authority. What more would regulation of the fund offer?

Time will tell. So far, 26 unregulated funds does not settle the argument one way or the other. But there are plenty of interested observers keeping an eye out from across a few miles of sea. When Jersey's regime was first announced, it was decried for 'having won the race to the bottom', but if unregulated funds strike a chord with European managers and investors, it is whispered that Guernsey may soon seek a similar regime of its own.