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EU law cuts off retail investors from the best investment opportunities

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If Soros or some other big investor has a clear idea on how to profit from buying, say, farmland in South America, he probably buys a chunk of land on his own account, then makes a fund to take on other big investors and, they play it out in profit from it in various degrees. The initiator of the idea profits both from allocation of proprietary capital and management of capital of other investors who are satisfied enough to have somebody to manage their investment properly.

However, for retail investors there is no way to profit. And for investment managers there is no legal way to offer such investment opportunity to retail investors. There is just no way to make an investment fund, eligible to retail investors, for strategies like described above. Such strategy falls under broadly defined alternative investment strategy. EU Directive 2011/61/EU (and its trasposing into national laws) allow retail funds to invest, effectively, only in listed securities, government bonds and bank deposits and money market instruments. Needless to say that those are investments with the most terrible risk metrics – from negative interest rates on government bond issues to casino like behaviour of the stock market in general.

Alternative investment strategies may be accommodated in specialized investment funds targeted to professional investors, but it is illegal to offer such funds to retail investors. Minimum investment should from €50k to €125k, depending on where the fund is domiciled. To achieve reasonable diversification, investor must have at least €1-2m to participate in more advanced, more rational and presumably more profitable investment opportunities. The average working person with €50k or less to invest just have no chance. He has available products from mainstream banks with ridiculously low at best or negative investment returns with some considerably profitable ones (needless to say, profitable by chance rather than virtue). Many countries, like Spain, does not even have legislation for specialized investment funds, just retail.


Written by A.S.

March 6, 2015 at 10:47 pm