UK – The UK’s asset management trade body has called for a debate about the tax position of hedge funds.

The Investment Management Association said it welcomed a debate initiated by the Financial Services Authority into hedge funds.

But IMA chief executive Richard Saunders said the association “encourages the UK authorities to widen the debate further to include the tax position of such products".

He was responding to two FSA discussion papers focusing hedge funds.

The FSA said that - while it views hedge funds as a “beneficial component of the financial system” – they also pose risks to its own statutory objectives.

The FSA added it is setting up a centre of hedge fund expertise and would “continue to develop a more proactive supervisory relationship with high impact firms”. It said it has increased data collection and “proactive market surveillance”.

“Today's discussion papers are a welcome step towards formalising the debate on more complex retail investment products and on hedge funds,” the IMA’s Saunders said.

“The IMA's members will take an active involvement in these discussions, both as managers of regulated and unregulated products and as users of capital markets.”

He said the UK already manages 75% of European hedge funds and therefore the industry has the capability to manage such funds onshore.

Hector Sants, managing director for wholesale markets at the watchdog, said: "We intend to make certain changes in how we engage with the hedge fund industry in the UK and seek feedback on these changes and other potential changes which we have identified as meriting consideration.

"In opening this discussion we are mindful of the danger of regulatory arbitrage and have no desire to cause the hedge fund management industry to migrate to more lightly regulated offshore centres as a result of regulatory action."

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