12 July 2007

London seeks more alternative funds

The London Stock Exchange is preparing to launch a regulation-light market for private equity, property and hedge funds as it battles NYSE Euronext for the lucrative business of hosting listed alternative funds.

The Specialist Fund Market, to be announced on Thursday, comes after the UK’s Financial Services Authority decided to abolish its nine-month-old light-touch regime for foreign funds listing on the main market – a regime opposed by investment trusts and traditional fund managers.

However, the exchange is trying to sidestep controversy by describing the new market as for “institutional, professional and highly knowledgeable” investors, so it does not need the same level of regulation as the main list.

The market will apply only the minimum standards imposed by European directives, meaning funds listed on it have a low disclosure burden, do not need independent boards and can sell non-voting shares. Andrew Wallace, senior manager of the new market, said there were “tens of billions of pounds of value looking for a potential market” and there had already been significant interest from the US.

Hedge fund, private equity and property managers have been rushing to take advantage of booming investor demand to float closed-end funds to provide them with locked-up capital.

Euronext Amsterdam won an early lead last year, hosting big fund launches from buy-out groups Kohlberg Kravis Roberts and Apollo Management, as well as the first two main-list hedge fund floats by Boussard & Gavaudan and Marshall Wace.

The FSA then changed the rules to allow listings of the funds in London – where the junior Aim market had been the only way for alternative funds to float – before intense lobbying prompted a U-turn.

London hosts about 80% of the European hedge fund industry and the vast bulk of the region’s buy-out teams, and Mr Wallace said this should give the new market a natural advantage in winning business. Funds listed will not be eligible for FTSE indices, something that had concerned tracker fund managers. Retail investors will not be prevented from buying funds on the new market, but its description as professional-only should deter them, Mr Wallace said.

© Financial Times