Merrill Lynch is expected to win the final go-ahead soon for its UK Absolute Alpha Fund, a unit trust with almost all the characteristics of a hedge fund.

Until now the marketing of hedge funds has been restricted to rich sophisticated investors making a minimum investment of £100,000 or more. However, the new Merrill product will be offered to middle-income investors able to chip in £250 a month or a £10,000 lump sum.

Merrill’s normal distribution channels include Nationwide Building Society branches and web-based fund supermarkets.

Steve Marriott, of Bestinvest, the independent financial advisers, said: “It appears to be the closest an authorised UK unit trust has got to hedge fund characteristics.”

The fund will have most of the freedoms of a hedge fund, being allowed to “go short” of shares and invest in stock market futures. It can also go to the extreme of being invested 100 per cent in cash. However, unlike most conventional hedge funds, it will not be allowed to borrow.

Despite some concerns that hedge fund investments could be mis-sold to unsophisticated investors, the FSA is seen as increasingly sympathetic to the asset class. A discussion document will be published next month setting out how hedge funds could be marketed to investors of more modest means while maintaining adequate consumer protection.

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