BRITISH investment groups have taken steps to strengthen their defences against the army of market-timing hedge funds that have targeted international funds registered in Luxembourg.

Schroder Investment Management said it had deployed a range of measures in its Luxembourg operation to deter the US hedge funds that have attempted to prey on its American funds. JP Morgan Chase Fleming is understood to have taken similar action.

Robert Higginbotham, a director of Schroder’s retail business, said the company had moved to fair value pricing for Luxembourg funds, which were more vulnerable to attack than UK-based funds because they were bought and sold at a single price.

He said Schroder had also altered the time at which the underlying assets of the fund were priced to ensure no traders could deal at a more advantageous price.

The changes affect four Schroder international funds with a large exposure to American stocks and the technology sector.

Luxembourg is believed to be more fertile ground for the market-timers than the UK because of the laxer regulation. The CSSF, the local watchdog, has so far not contacted any British group about the activities of hedge funds, according to Schroder.

In the UK, the Financial Services Authority (FSA) is questioning the major unit trust groups about their dealings with the market-timers. But while many in the UK industry acknowledge they have been approached by the hedge funds, none will admit to having received fees from any of the predators.

Legal & General, the insurance company that is also one of the country’s largest fund managers, said it had plenty of safeguards within funds to deter the market-timers. A spokesman said: “We constantly monitor the buying and selling of units.”

M&G, the fund management arm of Prudential, the life insurer, said: “We have never knowingly been targeted by a market-timing hedge fund. We monitor trading in our funds closely.” As a last resort, M&G said it could impose an exit charge, known as a “dilution levy”, to ward off the market-timers.

Allenbridge, a London firm of financial advisers, estimates that there are at least 76 hedge funds worldwide that use some form of market-timing as an investment strategy. The vast majority of funds are registered in the United States. London boasts only two firms involved in the business, Pentagon and Headstart.

Anthony Yadgaroff, managing director of Allenbridge, said the market-timing scandal had yet to make any impact on ordinary investors. “I have not had one call from a client about this,” he said.