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UK public endorses retail access to hedge funds

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An overwhelming majority of the British public approves the plans of the country’s financial industry regulator, the Financial Services Authority, to extend access to hedge fund products t

An overwhelming majority of the British public approves the plans of the country’s financial industry regulator, the Financial Services Authority, to extend access to hedge fund products to retail investors, according to a survey carried out on behalf of F&C Investments by public relations and media consultants 72 Point.

No less than 77 per cent of the UK public believe the FSA should allow hedge funds to be marketed to retail investors, although a large majority (63 per cent) say this should be subject to strict guidelines. Only 10 per cent of respondents believe hedge funds should be restricted to professional investors.

The survey, which involved interviews with 3,091 respondents, also reveals that contrary to popular belief, more people recognise that hedge funds are designed to reduce risk than believe they are high-risk, specialist investments.

Forty-three per cent of respondents said hedge funds were designed to reduce risks in falling markets, compared with 24 per cent who thought they were high risk, although as many as one-third of respondents had no opinion.

‘We are very encouraged by the research, which clearly demonstrates a very supportive attitude from the UK investor toward hedge fund investing,’ says François Barthélemy, a partner of F&C Partners, the asset manager’s fund of hedge funds business.

‘It seems there is little support for wider restrictions, with only 10 per cent of the UK public favouring a hedge fund regime restricted to professional and high net worth individuals, compared with 55 per cent of respondents who favour direct public access to hedge funds and a further 35 per cent who think wider access should be given but only through specialist managers.

‘Investors are becoming more sophisticated in their investment choices and recognise the benefits of hedge funds as a risk-reducing tool in their investment portfolios, with 64 per cent answering that they are no more risky than investing in shares.

‘Provided that hedge funds are managed by teams of professionals, there is no reason why they should be considered any more risky than the average equity or fixed-income investment.’

The survey also found that while 14 per cent of investors wanted traditional fund performance goals related to market indices and 34 per cent wanted returns relative to cash, the majority (52 per cent) wanted absolute returns regardless of whether markets were moving up or down.

‘The low correlation of hedge funds to markets makes them a great risk diversifier,’ Barthélemy says. ‘We believe that at times of market volatility, a portfolio of hedge funds offers the best risk/return profile available.’

However, the survey found that public awareness of different means of accessing hedge funds remains very low, with more than three-quarters of investors unaware that they can do so through stock exchange-listed companies that invest in a selection of hedge funds – or even in a few cases single-manager portfolios.

Says Barthélemy: ‘Funds of hedge funds, managed by a team of specialists with the necessary expertise to do a detailed screening, due diligence and face-to-face research process, provide a great solution for retail investors wishing to gain exposure to hedge funds.

‘The closed ended structure is also well suited to underlying asset classes such as hedge funds, and their oversight by independent boards gives shareholders additional comfort that their interests are being looked after.

‘With the FSA’s consultation period regarding the marketing of hedge funds in sight, we hope that in the future we will be able to work with the regulator to raise awareness of hedge fund investment among retail investors.’

F&C Asset Management, which is listed on the London Stock Exchange and majority owned by insurer Friends Provident, has offices in France, Germany, Ireland, the Netherlands, Portugal, Switzerland, and the US as well as the UK, and managed assets totalling GBP102.7bn at the end of March on behalf of institutional, insurance and retail clients.

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