Norway paves the way for marketing of hedge funds

The Norwegian Ministry of Finance has in March 2008 presented a long awaited white paper to the Norwegian Parliament recommending that Norway’s restrictive investment regulations concerning hedge funds shall be liberalised. Under current Norwegian regulations, marketing of hedge funds is prohibited.

The white paper proposes that Norwegian fund managers be allowed to establish domestic “special funds” employing typical hedge funds strategies, and that foreign hedge funds that provide a level of investor protection equivalent to such domestic “special funds”, may be granted marketing licences into Norway.

The proposal does not suggest marketing of hedge funds to be restricted only to professional investors. Marketing of hedge funds to non-professional investors should, however, only be permitted through licensed investment advisors in order to ensure protection of retail investors’ interests through compulsory suitability testing as set forth in the EU MiFID Directive. The currently available “exemptions” relating to sales based upon investors’ first approach are nevertheless expected to prevail under the new hedge fund marketing regime.

Although the white paper proposes a thorough liberalisation of permitted investment strategies, it also suggests that certain minimum standards of investor protection should be met by “special funds”. These include limiting the investors’ maximum exposure and potential liability to the initial investment in the fund, requiring fund units be redeemable as a minimum at annual intervals, ensuring proper disclosure of strategies and risk management and establishing a depositary function effectively controlling the management of the funds.

The white paper proposes that foreign hedge funds’ marketing licences should be conditional upon the fund manager and the hedge funds being subject to satisfactory supervision in their country of domicile and that satisfactory cooperation between the Norwegian regulator and the regulator of the foreign hedge funds has been established. If adopted, this prerequisite would as of today imply that only EEA and USA-domiciled hedge funds will satisfy the criteria for being granted marketing licenses into Norway. Sub-funds of EEA or USA-domiciled hedge funds may however be established in offshore jurisdictions.

The proposal may at the earliest be expected to be adopted by the Norwegian Parliament during summer 2008. A number of issues relating to the availability of marketing licences for foreign hedge funds remain unaddressed in the white paper. Supplementary regulations to the new legislation are likely to be adopted before entry into force of the new regime, which would be expected at the earliest by 1 January 2009.


For further information please contact:

Cecilie Kvalheim, tel. +47 22 82 75 92, e-mail ckv@wr.no
Sigurd Opedal, tel. +47 22 82 76 28, e-mail sop@wr.no

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