Danish regulator scotches rumours of favourable hedge fund ruling

Denmark's chief regulator, the Financial Supervisory Authority (FSA), is unlikely to relax rules that block locally domiciled investment funds from using leverage, FSA financial inspector Jens Vestergaard told RiskNews .

Vestergaard said while new Danish investment trust regulations – expected to be ratified within 12 months – would likely allow the trading of uncovered derivatives for the first time, relaxations would not extend as far as to allow for leveraged investments.

Commenting on whether it would be possible for hedge funds to operate ‘on-shore’ in Denmark after the proposed rules become effective, Vestergaard said, "In practice it will not be possible."

Other Nordic countries like Sweden and Finland have seen a proliferation of hedge funds during the past three years, with about 38 funds managing assets in excess of $4 billion now domiciled in the two countries. Hedge fund participants were hoping changes in Danish regulations would allow the ‘on shore’ market to develop in that country.

The Danish FSA is currently drafting its new investment trust proposals, which it will submit to national parliament by the end of the year. The European Union (EU) regulations covering investment trusts prevent these entities from using gearing. But these rules can be over-ridden by national regulators.