ASIC has released a consultation paper that outlines proposals to improve disclosure requirements for retail investors who invest in hedge funds. Consultation Paper 147 Hedge funds: Improving Disclosure for retail investors (CP 147) seeks feedback on enhancements aimed at ensuring retail investors and their advisers have the information they need to make an informed investment decision about the risks posed by hedge funds.

ASIC Commissioner, Greg Medcraft said, ‘Hedge funds, because of their diverse investment strategies, complex structures and use of leverage, short selling and derivatives can pose more diverse and complex risks for investors than traditional funds. Investors need the knowledge to assess factors such as how their money is to be invested, who makes key decisions for the fund, how the assets will be valued, and how investors can withdraw their money as well as details relating to leveraging, derivatives and short selling.’

In defining the scope of the proposed disclosure guidance, ASIC has focused on funds that are promoted as or likely to be regarded as hedge funds. ASIC has also identified some characteristics that will help identify the type of strategy pursued, the complexity of the structure and the use of leverage, derivatives and short selling.

As part of this consultation, ASIC is also seeking feedback on how the proposed disclosure guidance will interact with the tailored Product Disclosure Statement requirements for simple managed investment schemes.

Comments on the consultation paper are due by Thursday 21 April 2011.

Further information about hedge funds is available on the FIDO website.

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Consultation Paper 147 Hedge funds: Improving Disclosure for retail investors