Three years after the FSA first consulted on the new collective investment scheme, Funds of Alternative Investment Funds have finally been introduced. As of 6th March, authorisation has been available. But was it worth the waiting for?

Despite the delays and postponements, some justified, some not, FAIFs should not be dismissed too lightly – this is the new bridge between the hedge fund world and the retail investor. The timing may not be perfect, but for those planning for the turn in the economy, this is one to look at carefully, to consider the possibilities and to lay the plans.

The view of many hedge fund managers is that retail investors are not for them. For many, marketing restrictions on unregulated schemes have taught caution wherever retail investors are concerned. For others the commercial logic focuses on the generic problems and costs of mass marketing and expensive administration. The attractions of dealing directly or indirectly with the retail market are an acquired taste, acquired by some and not by others.

But that question, significant as it is, looks at FAIFs from one angle only. For those with reservations about the retail market, there is the alternative: develop your strategy to appeal to FAIFs offered by others. FAIFs will take two principal forms – those established as a vehicle for promoting the manager’s own hedge funds and the others which offer a retail window on the hedge fund world, providing the pick of the universe, to be held in ISAs and every form of retail access.

Grand as it sounds to launch a FAIF that will choose only the best, it will not be as simple as that. The FAIF manager will have his hands tied by the new regulations. He cannot invest with total freedom, which he may find restricting and frustrating, but for the hedge funds that qualify, this is a barrier which keeps FAIFs exclusive and the competition at bay.

The secret of access is not well hidden. The barrier itself is there in COLL 5.7.9R, a rule that is greatly enlarged upon, at length and in detail, in COLL 5.7.11G. The due diligence required will be a process that will assume a stream-lined character designed quickly to eliminate the ill-prepared. The shopping list of questions will be closely based on the rules and guidance, enabling those who wish to qualify to anticipate the qualities sought and to ensure that they are not found wanting on any count.