The UK government is set to unveil sweeping changes to its regulatory framework for hedge funds and private equity firms, proposing a new lighter-touch regime for managers with less than £5bn in assets under management rather than the £100m threshold currently, according to a report by the Financial Times.

The proposed reforms, to be announced by the Treasury and open to industry consultation in partnership with the Financial Conduct Authority (FCA), are designed to reduce the compliance burden on smaller firms and enhance the UK’s appeal as Europe’s leading hub for alternative asset management.

The overhaul could have major implications for the UK's £355bn hedge fund industry and the wider private capital market, which accounted for more than half of Europe’s €1.15tn in private equity AUM last year, according to data from Arthur D Little.

Under the new plans, fund managers below the £5bn threshold would be subject to a more proportionate regime, tailored to their size and operational complexity. The government argues the shift will unlock capital, reduce regulatory friction, and promote innovation across the alternatives sector.