Plans to make it easier for people in the UK to invest in hedge funds have been announced by the Financial Services Authority (FSA).

The FSA is consulting on a proposal to allow investors to make a UK investment directly into ‘funds of hedge funds’ based in the country.

UK investors are currently only permitted to place money into foreign hedge funds, or buy shares in hedge funds management firms listed on the London stock market.

But the FSA’s mood has changed on the vehicles. “Hedge funds are not necessarily more dangerous than other investments and can help investors to spread their risk,” said Dan Waters of the FSA.

“What we are proposing to do is to lift a ban we have at the moment on ‘funds of hedge funds’ being located or authorised here in the UK.”

The FSA now thinks that hedge funds are such a usual part of the international investment arena that UK investment into them should be allowed.

So why were hedge funds treated with such caution in the first place? “Basically, because they are very risky investments that are difficult for the average person to understand,” said City analyst Colin Perry.

“They take a variety of ‘positions’ on movements, up or down, in the market and some have crashed spectacularly in the past. What the Government didn’t want to see, for obvious reasons, were thousands of investors losing their shirts just because they made a saving and investment into them.”