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Regulatory spotlight to fall on absolute return funds

Absolute return funds are to be investigated by the Financial Services Authority (FSA), the regulator has indicated.The funds are a relatively new type of investment vehicle, which promise returns despite investing in the stock market.So far, the products seem to have kept their promises - despite falling markets, the seven funds which have been on the market for more than a year have returned an average of five per cent.The products' promises of returns have also swelled investor numbers, with the largest fund on the market growing from £200 million to £1.5 billion over the past 12 months.Speaking to the Daily Telegraph, an FSA spokesman said:"We want to better understand how the funds are developed and what consideration is given at the product development phase to risk management and treating customers fairly; to learn more about the marketing distribution of ARFs; and to assess the role of ARFs within the asset management industry as a whole."

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