Where a Responsible Entity (RE) for a hedge fund or fund of hedge fund offers product to retail investors in Australia, ASIC has released RG 240 (effective 1 February 2014) which requires greater disclosures to be made by RE's.
The RG includes a definition of a hedge fund to assist RE's in determining if the RG is applicable to the funds they operate. This definition indicates a fund is one that is promoted as a hedge fund or that exhibits two or more of the following characteristics of a hedge fund:
Complexity of investment strategy or structure (determined by reference to multiple interposed entities)
Use of leverage
Use of derivatives (other than for the dominant purpose of managing foreign exchange or interest rate risk, gaining economic exposure on a limited temporary basis, or the use of exchange traded derivatives)
Use of short selling
Charging a performance fee out of the fund's assets
A fund of hedge funds is one which has 35% of the fund's assets invested in schemes whose assets meet the above definition or is promoted as a hedge fund of funds.
For each fund that you act as RE for we recommend comparing the fund mandate, investor base and investing activities to the above definition to determine if RG 240 is applicable.
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