APRA now targets hedge funds

The Australian Prudential Regulation Authority has signalled it will now focus on hedge funds saying some superannuation trustees' use of them has left investors vulnerable. While the precise definition of “hedge funds” is hazy, APRA says it's looking at managed funds that have broad and “alternative” investment strategies which aim for always-positive returns rather than relative index-beating returns. many hedge funds use derivatives and borrow to investment.

APRA's GM Wayne Byres says investors should be cautious about hedge funds and understand the risks involved as well as ensuring they're regulated under Australian law. Some hedge funds can lead to significant losses in a short space of time particularly those where gearing is used. ASSIRT says 26 new Australian hedge funds worth $5.4 billion were established between 1998 and 2001, in addition to 14 “funds of hedge funds”, funds which diversify across a number of underlying specialist hedge funds.

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