The Alternative Investment Management Association (AIMA), the trade body for Britain’s hedge fund industry, said yesterday that it believed that tougher regulation would force existing hedge fund managers out of the City and prevent new managers from starting up in the UK.

AIMA has garnered opinion from 50 of its members, in response to a paper from the Financial Services Authority (FSA) aimed at assessing the case for more regulation of hedge funds.

The trade body told the FSA that it disputed the notion that the proliferation of hedge funds had led to an increase in levels of fraud.

“There is no apparent evidence of a higher level of fraud in the industry than elsewhere,” AIMA said.

The body also points out that, over the past ten months, there have been consistent rumours about potential hedge fund collapses.

However, it claims: “As in most years, a number of hedge funds may have suffered reversals in market performance and there has been a steady attrition of unsuccessful funds. However, in a free market this is not a sign of ill health in the market as a whole.”

The organisation also contests the FSA’s suggestion that hedge funds should have to gain additional permission from the regulator before offering their funds.

AIMA dismisses the regulator’s contention that hedge funds’ standards of compliance and risk management are lower than in traditional investment funds.

It claims: “Hedge fund managers regard themselves as having leapfrogged more traditional providers into next-generation systems and investment techniques.”

In addition, the trade organisation disagrees with the FSA’s claim that the cost of trading errors should be legally borne by the hedge fund manager rather than the hedge fund itself.

AIMA says: “We would be grateful for clarification on this matter, since it appears unclear what the law provides and what market practice is.”

AIMA’s response to the FSA comes as the US Securities and Exchange Commission prepares to water down its own proposals for the registration of American hedge funds.

The SEC is thought to be considering raising the threshold for hedge fund registration from the current level of $25 million.

Explore Industry Sectors

• Banking & Finance

• Construction & Property

• Consumer Goods

• Engineering

• Health

• Industrials

• Leisure

• Media

• Natural Resources

• Retailing

• Support Services

• Technology

• Telecoms

• Transport

• Utilities

Times Recommends

• Bank on the brink as recession fears worsen
• Persimmon takes housing sector job cuts to 4,500
• Savills hit as London house prices down 7.5%