GERMANY- Financial regulator BaFIN says it will issue its rules on how pension funds and insurance companies can invest in hedge funds later this year.
A spokesman for the Bundesanstalt fuer Finanzdiesntleitungsaufsicht’s hedge funds section said that regulations on hedge fund investments should be due “between summer and autumn”. The proposals could be presented to the public by the regulator itself or the finance ministry.
Germany changed the law last year to allow hedge fund investments as of January 2004, allowing single manager hedge funds to be sold to investors and funds of hedge funds to be sold to a broader investor base.
German investors were not completely barred from the asset class but they had to invest abroad and a certificate was also necessary to embark on the investment. Things may change now as the funds have been introduced and “options are bigger”, he also said.
But, according to industry consultant Peter Scherkamp: “There is potential for frustration”. Scherkamp, who used head the Siemens pension trust and now runs his own firm, said: “Expectations are too high.”
He added that the high return and low risk profile of hedge funds might be “diluted” as more investors opt for the class. He was afraid the asset class might not live up to the expectations entertained by some investors.
A “really good, strong and deep” understanding of the asset class was necessary, on the other hand, to keep expectations realistic.
Under current laws, Pensionskassen are allowed to invest in hedge
funds, but the intended investment must comply with the standards of the Insurance Advisory Laws.
'Pensionsfonds', which are still rare in Germany are less restricted in
their investment strategy, while the recently instituted CTA or Contractual Trust Agreements are able to make any investment decision, being un-regulated.