ASIC will release a regulatory guide for hedge fund disclosure early next year, following its release of a consultation paper in February this year.
Alternative Investment Management Association (AIMA) Australia president Kim Ivey said that their collaborative work with ASIC has resulted in an improvement in understanding "what the other party is looking for" on both sides.
"We have been working with them to ensure that that is a prudent piece of legislation, in a way that the industry understands why it's been installed and what benefit it [has] for investors," Ivey said.
Ivey said he wasn't surprised at the level of knowledge advisers lacked around hedge fund illiquidity as it's a complex issue.
"Daily liquidity is a dangerous issue for Australia. There has been criticism from inside the tent that some very large hedge fund managers perhaps didn't explain in worst case scenarios [what] things could occur."
"The onus should be on the hedge fund manager to make sure their investors understand what they are investing in [although] there's been education on both sides."
Ivey said fund managers are now conforming their liquidity terms to their portfolio liquidity to avoid constraint when markets dry up.
"That's an issue that we're discussing with ASIC to ensure that there is proper disclosure around it," he said.
With $50 billion of hedge funds placed as Australia domicile, Ivey said fund managers have reported an interest from financial planners for fund-of-fund hedge funds and long-short equity-type strategies.
"[This] leads me to believe people are thinking ahead of the curve," he said.
"What we're finding in Australia is with the RBA cutting rates, retail investors and advisers to individual investors are saying we're no longer getting 6 per cent risk-free out of the banks. We've also had a little bit of dislocation within the equity markets and we've got an inverted yield curve.
"As an adviser to individual investors, there is a bit of an analysis going on now [of] 'where do we start to go to next?'"
