Survey finds support for hedge regulation after Portus

(July 4, 2005) Despite the high profile nature of Portus’ demise earlier this year, there was still a significant gap among advisors in understanding the allegations against the hedge fund firm, according to an online survey conducted by the Advisor Group.

Only 59% of respondents said they were familiar with the allegations against the company, with only 18% saying they were “very familiar” with the case.

Familiarity with the case was less common among those who consider themselves insurance specialists, with 44% of this group unfamiliar with the allegations. Fifty-five percent of respondents with under $10 million in assets said they were not familiar with the case.

Two thirds (66%) of advisors agree with the statement that “the OSC’s current investigation of Portus is a black eye for the hedge fund industry,” — 40% “somewhat agree,” and 26% who “strongly agree.”

However a majority (55%) say their opinion on the suitability of hedge funds for some clients has survived Portus. Twenty-eight percent disagree with the statement that “the allegations against Portus do not affect my opinion of hedge funds, which remain a suitable investment for the right client.”

Respondents did say, however, they would like to see more regulatory scrutiny for the hedge fund industry. Seventy-nine percent agree there should be a higher standard of regulatory scrutiny. Only 10% say they disagree with increased regulation.

Support for added scrutiny was strongest among advisors in eastern Canada, with 59% strongly agreeing, as well as among financial planners, with 47% strongly agreeing. Advisors managing more than $30 million in assets strongly agree with such measures (53%), as do employees of bank-owned brokerages (55% strongly agree).

Opinion was split over how Portus affected their perception of principal-protected structured products that are not tied to hedge funds. Forty-eight percent are more concerned about these products, while 33% say they are not more concerned. Insurance specialists are more likely to agree (62%), along with those who do not work for a bank or bank-owned brokerage (52%).

The online survey was conducted between April 8 and April 29, 2005 with 412 respondents. The survey is considered accurate to within 4.6%, nineteen times out of twenty.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com