Welcome to the last edition of Hedge Clippings for 2012. It has been an eventful year here at AFM, but I guess when you're monitoring over 320 actively managed and absolute return funds that's always going to be the case.

First up, today we have released a new version of the Fund Monitors website. We hope you find it an improvement, but feel free to provide feedback (good or bad) and comments. If you're a previous user we suggest you press 'control + F5' on your keyboard to clear any cobwebs from the previous version. The new website will build and expand on coverage of fund performance and news feeds, including videos and research library.

Secondly, in October we launched an investable version of the E5 Equity Model Portfolio which we had used to track the performance of a small group of Australian actively managed equity funds. Over the previous five years the model portfolio had returned close to an annualised 15% with a volatility of less than 6%. Branded the AFM Prism Active Equity Fund, it is open to wholesale and sophisticated investors with a minimum investment of $250,000.

From a staffing perspective we welcomed a new administration manager (not my strongest suit), Alexis Scott who has transformed the office, but is still working on my time management. I think it's a case of the difficult we do at once, with the impossible taking a little longer. In January we look forward to welcoming a new Head of Research, and in February will launch the Prism Select Portal that will include selected research on 'best of breed' funds, with interactive online application functionality and reporting.

Meanwhile although there's still one month's data to come, year to date performance has ranged between great, good, ok, average, poor and unacceptable. All this does is confirm the diversity and range of funds, and skill of the various managers. YTD the best performing fund has returned investors 62% while the worst has fallen by -40%. In round terms just over 80% of funds have provided positive returns, while 30% have outperformed the ASX200.

Making it doubly difficult for investors is that many of the best performers have lifted their returns after a difficult few years, while some of the more disappointing had previously avoided risk in more troubled markets. Some, and we would argue the best, have provided the consistency of good risk adjusted returns year in and year out. Our 2012 Fund Review due out in late January will sort the wheat from the chaff.

And 2013 will probably see more of the same - a variety of performance and risk, no doubt with more new entrants and a few calling it a day. Life goes on, and we are eagerly looking forward to it. Maybe, hopefully, next year will see less political influence on the macro scene than the one just (almost) past.

And on that note I'd like to wish all readers compliments of the holiday season, and a happy, healthy and prosperous New Year.

Regards,

Chris.

Australian Fund Monitors (AFM) www.fundmonitors.com provides the most comprehensive source of data and information on Absolute Return, Hedge Funds and Alternative Investments in Australia.

Performance and Industry News will be updated weekly.  We are also releasing a series of videos on Understanding Hedge Funds, with Fund Manager interviews to be added to the video showcase in 2013.  Please watch the first video, which explains what a Hedge Fund actually is, by clicking here.

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Enjoy your Summer holidays!

We would like to take this opportunity to wish all our visitors and clients a very merry Christmas and safe and happy holiday season.  We look forward to a prosperous 2013!

Investors would be required to pass an online exam before investing in complex or risky products under a proposal by Greg Medcraft, the chairman of the Australian Securities and Investments Commission.

Medcraft told The Australian Financial Review he believes existing disclosure documents are no longer effective and new technology and innovative approaches are needed to protect investors.

Investors would be required to take "e-learning module" tests that could take up to two hours. The tests would examine investors' knowledge of financial products including margin loans, contracts for difference, derivatives and hybrid securities.

Potential investors could be shut out for 30 days if they failed the exam, which would have password protection to stop cheating.

"We have to start thinking about tools for investors which are not just disclosure," Medcraft told the newspaper.

"PDS [product disclosure documents] are not working for some [investors] and often it is not because they don't understand, they just don't have time. We are in a world where everyone is busy and I think we just have to start thinking more creatively."

The ASIC proposal follows the collapses of Banksia Securities, Trio Capital and MF Global, which hit many investors hard.

To read the entire article from Cara Waters at Smart Company.com.au, click here.

Or read this related article from Business Spectator here.

(Reuters) - U.S. asset manager Legg Mason Inc (LM.N) said on Thursday it will buy Fauchier Partners, one of London's oldest fund-of-hedge-funds firms, from BNP Paribas Investment Partners (BNPP.PA), the latest deal in the fast-consolidating sector.

Opalesque has revealed the number of new Hedge Fund launches declined and Fund liquidations increased in the third quarter. The number of single-manager Hedge Funds has increased to record levels whilst Fund of Hedge Fund numbers have fallen back to 2005 levels.

The squeeze on management and performance fees continued with the average management fee falling to 1.56% and the average performance fee falling to 18.62%. Ongoing pressures relating to increasing regulatory burdens, market uncertainty and competition have made conditions difficult for some managers; particularly given 51.85% of funds covered by Fund Monitors have been below their high water marks for 6 months or more as of October 31.

For full Opalesque article click here.