Since January 1 2004 it has been possible to establish hedge
funds in Denmark in the form of an "other collective investment
scheme" pursuant to chapter 17 the Danish Investment
Associations and Special-Purpose Associations as well as other
Collective Investment Schemes Act (the IAA).
The minister of economic and business affairs has introduced
a bill amending the IAA and proposing that open-ended hedge
funds that receive funds from a wide group of investors or from
the public in general are required to obtain authorization from
the Danish Financial Services Authority (FSA). Other open-ended
hedge funds can on a voluntary basis obtain authorization.
These regulated hedge funds have the exclusive right to use the
Danish term Hedgeforening in their name.
Regulated hedge funds are not subject to investment or
placement regulation. Their risk policy and risk profile should
be set out in their articles of association, and the board of
directors should on this basis set out the specific risk
limits. Each of the registered holders of units in the fund
must be notified of any change in such limits. Any breach of
the risk policy or any exceeding of the specific limits must be
reported to the Danish FSA and to each of the registered
holders of units in the fund.
Another special feature is that the regulated hedge funds
should be open for issue and redemption at least once every
month, which could prove disadvantageous in the international
The expansion of regulated hedge funds is dependent on an
amendment to the tax legislation. The bill introduced to this
effect proposes that holders of units in hedge funds be taxed
on the basis of a mark-to-market principle, which might be a
drawback compared to interest in companies in which the
investor is taxed on the basis of a realization principle.
The new regulation is expected to come into force on July 1
2005. Existing chapter 17 funds will be covered by a six-month
Hedge funds have previously been offered in Denmark by way
of bonds linked to hedge funds. The Danish FSA, in a decision
from October 2004, stated that such bonds constitute indirect
marketing of the hedge fund and require approval from the