While the U.S. Securities and Exchange Commission is attempting to limit the pool of investors able to access certain alternative investments, the United Kingdom’s financial regulator, the Financial Services Authority (FSA), is seeking to allow greater retail participation into hedge funds.
In a recently released consultation paper the FSA proposed introducing retail-oriented funds of alternative investment funds (FAIF) into the existing retail regulatory scheme. The FSA noted, “The advances that have taken place in portfolio management mean that the traditional, long-only style of management typically found in retail investment products may no longer be the only appropriate strategy for every investor.”
The Alternative Investment management Association (AIMA), a London based trade group, applauded the move. “Retail investors should be given the opportunity to invest in market leading investment products,” AIMA noted.
The FSA proposal states that the introduction of FAIFs will bring the U.K. in line with other European countries, many of which have already introduced similar retail products.
“There is a general international acceptance, that advances in investment management techniques make such funds appropriate for the retail environment,” notes the FSA.
The FSA also points out that while FAIFs would be regulated retail vehicles, “they would be able to invest substantially in other funds that will themselves be unregulated.” Those underlying funds would include hedge funds.
ICE gets 60/40
The Intercontinental Exchange (ICE) gained ammunition in its battle with the New York Mercantile Exchange and managers have gained affordable access to ICE’s energy markets, when in March the Internal Revenue Service designated ICE Futures a “qualified board or exchange.” The designation allows U.S. participants trading the ICE Futures’ energy complex 60/40 tax treatment, which treats 60% of a trader’s profits or losses as long-term capital gains.
All domestic futures contracts receive the favorable 60/40 tax treatment, but the CFTC approved non-U.S. markets still must petition the IRS to receive it.
“A foreign exchange is at a huge disadvantage because of the lack of 60/40 tax treatment,” says ICE Chairman and CEO Jeff Sprecher. “We have put ICE Futures on a level playing field at least on a cost and tax perspective with the U.S. exchanges.” He adds that ICE has received positive feedback on the ruling, particularly from prop shops and commodity trading advisors that are organized as partnerships.
“It will make ICE more attractive, now they are on equal tax footing,” says Jeff Malec, principal of Attain Portfolio Advisors.