The same industry which proclaimed Isas to be too complex for the average investor is now enthusiast...
The same industry which proclaimed Isas to be too complex for the average investor is now enthusiastically planning to target them with hedge funds.
The raft of launches continues with an increasing emphasis that retail investors needs exposure to alternative vehicles. The obvious sales pitch is there it is a complicated vehicle but if you had professional advice you should be alright.
The problem is that while hedge funds might be attractive propositions IFAs are likely to be wary of them due to their unauthorised and unregulated status. The business risk to the IFA is high if the investment goes down. How defendable is the intermediary's position in recommending an unauthorised product over a conventional one?
This may explain the warm reception Deutsche's Isable fund of hedge funds product seems to be receiving over other hedge fund offerings because it is regulated: something other groups are likely to follow. In fact there is talk that several mainstream investment houses are planning versions of the Deutsche vehicle as well, although they are unlikely to be on offer for this Isa season.
Once the obstacle of regulation can be surpassed intermediaries may find themselves awash in a sea of hedged products, and ill equipped to actually advise on them. IFAs are going to have to get up to speed and quickly on the different investment strategies involved in hedge funds if they are going to be in a position to advise on the products once they come onto the market.
They will also need to be able to assess the management skill of those operating the funds. While fund managers may have outstanding reputations in the unit trust arena and be well trusted by IFAs, are they equipped to manage a hedge fund? One key may be to look at how much of the manager's own money is invested in the fund. There is a level of comfort and risk control inherent in investing with managers who have their own money invested in the funds they are running. Not only do they suffer job wise if the fund hugely underperforms, they are hit financially.
With all the issues coming up and the number of products from groups becoming available, on offer from investment houses to research groups to wealth management services, educational seminars are not to far off, which is probably a good thing.
The field of investments is opening up and while intermediaries can be excited about the possibility of adding a vehicle that is not correlated to world markets to their clients portfolios, there may be a few hurdles to go before they can effectively be utilised, understanding them may be the first.
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