The global hedge fund industry association has called for regulations to better recognise the difference between products offered to professional investors, and those offered to the retail market.

The Alternative Investment Management Association has published a new, enhanced statement of policy principles, setting out its core set of beliefs regarding investor protection, regulatory consistency, systemic risk, and market integrity.

AIMA said retail investors need more protection than professionals, and the rules governing hedge funds should recognise this difference.

“Investments in hedge funds are typically made by sophisticated investors who possess or can access expertise allowing them to select and monitor their hedge fund investments,” the document said. “Hedge fund regulations should reflect this differentiation by introducing greater protection or higher levels of prescription only on products which are, or may be, distributed to retail investors.”

Other principles for improving investor protection include robust rules around the segregation and protection of investor assets and collateral.

On regulatory consistency, AIMA said policymakers should continue to seek a co-ordinated international framework which preserves the cross-border nature of financial markets. The association also warns about the dangers of extraterritoriality and regulatory overlap, which it said can lead to market fragmentation and regulatory arbitrage.

AIMA’s principles for understanding and mitigating systemic risk include the maintenance of a diversity of market participants and investment strategies and mechanisms to end the problem of “too big to fail”.

The AIMA paper also suggested a number of methods for improving market integrity, including clearly-defined and internationally-harmonised market abuse rules and effective market abuse sanctions.

AIMA chair Kathleen Casey said the association AIMA wants to participate actively in the elaboration of policies in the areas of asset management and financial markets regulation, aiming to improve investor protection, market transparency and financial stability overall.

“It is in the deepest interests of the global hedge fund industry that the financial markets on which it operates are well-functioning. This is why we have worked to develop our 2009 platform further, also addressing areas which have not been treated previously.

“This paper therefore presents an enhanced list of principles which AIMA supports as part of its overall policy on key issues facing the global hedge fund industry and financial markets in general. It endeavours to explain, not only to the official sector but also to the industry as a whole, our core set of beliefs.”

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