Research Handbooks in Financial Law series
Edited by Phoebus Athanassiou
Chapter 5: Alternative Investments and Retail Investors – A Bold but Risky Experiment
Harry McVea* 1. INTRODUCTION The label ‘alternative investments’ is notoriously ill-defined, perhaps best characterized in terms of an attitude to risk rather than as a distinct asset class.1 Traditionally, access to alternative investments – and to investment strategies typically associated with such investments – has largely been restricted to sophisticated (or at least wealthy) investors. Such investors are taken to know (or to be able to afford advice about) the risks they are running and, therefore, to be capable of deciding where and how much of their wealth they should invest. Furthermore, they are taken to be able to bear the loss in the event that losses do, in fact, occur. Yet while alternative investments have traditionally been the preserve of sophisticated investors and market players, the last decade or so has witnessed a growing desire by domestic and EU regulators to facilitate retail investor access to a wider range of investments and sophisticated investment strategies through the use of authorized onshore investment vehicles. Claimed rationales for this policy are to promote greater consumer choice and to offer retail investors the opportunity to diversify risk. This chapter seeks to engage with, and contribute to, the ongoing policy debate which surrounds the liberalization of the alternative investments sector – in particular with regard to retail access to hedge funds and/or hedge-fund-like strategies – as it applies to unsophisticated investors. Furthermore, it seeks to describe and critique the regulatory landscape in the UK (and indirectly the EU) which has resulted from recent domestic and EU policy...
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