The Post.ie – The glitzy but complex world of hedge funds found itself at the receiving end of unwelcome attention from financial regulators in Ireland and Britain last week. The Irish Financial Regulator showed its teeth to the industry with an unprecedented move to shut down three hedge funds operated by Broadstone Fund Management, a Dublin-based investment management firm.
Meanwhile a study by its British equivalent, the Financial Services Authority (FSA), highlighted concerns over potential conflicts of interest among fund managers and unfair treatment of investors.
Hedge funds are specialist financial instruments that aim to deliver returns for investors by actively trading shares, commodities such as oil and gold, and derivatives such as put and call options and interest rate futures.
Although riskier than conventional investments, they appeal to institutional investors and wealthy individuals because they can outperform rising markets and are also capable of making money when markets are falling.
This is possible through sophisticated – and often short-term trading – strategies, which allow fund managers who think a stock is set to fall in value to sell the stock and later buy it back at a lower price.
The industry has exploded since the mid-1990s and is now worth almost €1.2 trillion, with over one third of these funds, worth €400 billion, serviced by fund administrators in Ireland.
Hedge funds account for more than 2,000 of the 8,500 people who work in the fund management industry in Ireland.
