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F&C expresses concern about lite understanding

F&C’s multi-manager team says it is excited about hedge funds lite coming into the market this year but it is concerned that some investors will not understand these strategies.

Hedge funds lite is the term that the industry is using to describe Ucits III funds that adopt hedge fund strategies to produce absolute returns with a regulated structure.

They are intended to combine the wider investment powers of hedge fund strategies relative to long-only funds with features such as greater liquidity, no lock-ins, transparency and greater regulation.

F&C believes that there are many benefits to having a regulated fund, but is concerned that the Ucits III structure could give investors a false sense of security. It says these funds should be treated as hedge funds and that investors should tread carefully.

F&C head of fund of funds Dean Cheeseman says one of the exciting things about hedge funds lite launches this year is that many will come from proven asset managers who already run fully fledged hedge funds. These managers, which are used to running hedge funds domiciled in places such as the Cayman Islands, are seeing UK onshore funds as a new market.

Cheeseman says that many fund managers that have proven skills in long-only funds have gone on to create highly successful Ucits III funds, where they use investment strategies such as long/short. But the transition from the long-only world to the wider investment powers of Ucits III has often involved a leap of faith and Cheesman feels these managers have tended to focus on long/short and market neutral strategies.

Cheeseman says: “Now we are seeing moves in to macro, arbitrage and volatility strategies coming through, which gives us greater choice to diversify. But the worry is that individual investors are not necessarily going to understand some of these strategies.  What concerns us is how these funds are going to be marketed and to whom.”

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