Background

The Australian Securities and Investments Commission (ASIC) has finally released (3 October 2013) the long-awaited changes to the definition of a ‘hedge fund’ (and ‘fund of hedge funds’) for the purposes of determining the application of the shorter Product Disclosure Statement (PDS) regime, and the application of enhanced PDS disclosure under ASIC Regulatory Guide RG240.  The original ‘hedge fund’ definition was unclear and too broad which had the unintended consequence of capturing many types of funds that should not have be treated as hedge funds. 

The troubled history of this definition is reflected in the number of delays in its finalisation. The shorter PDS regime applying to simple managed investment products commenced on 22 June 2012.  At the last minute, ASIC issued interim relief to exclude ‘hedge funds’ from the application of the shorter PDS regime and to allow those ‘hedge funds’ that had prepared shorter PDSs until 22 June 2013 to transition back to a long form PDS. The transition date had to be extended to 1 February 2014 as it became clear that the original definition of ‘hedge fund’ was too broad and unworkable.  ASIC has since consulted significantly and widely with industry to refine the definition.  It is intended that that the re-worked definition of 'hedge fund' will allow the more accurate targeting of the types of funds which pose more complex risks for investors.  As ASIC Commissioner Greg Tanzer stated, “Our changes will benefit the industry by relieving some lower-risk funds from the more extensive disclosure obligations imposed on a hedge fund.”

How has the definition of ‘Hedge Fund’ changed?

Click here to view table.

What should you do now?

  • Fund managers should review their fund investment structure and strategy against the revised definition of ‘hedge funds’ and ‘funds of hedge funds’.

  • If the fund meets (or continues to meet) the definition:

    • If a short PDS is currently being used for the fund (because the fund was previously thought to be outside the definition), a long PDS must be in place by 1 February 2014 and the PDS must satisfy RG240 enhanced disclosure requirements.

    • If a long PDS is currently being used for the fund, the RE must consider the extent to which it needs to meet its enhanced disclosure requirements under RG240 from 1 February 2014.

  • If the fund no longer meets the definition and is using a short or long PDS, the RE should consider the application of the shorter PDS regime to the fund and ensure compliance from 1 February 2014.

This article was written with assistance from Avi Gordon, Lawyer.