assets. ( merrill lynch / cap gemini ernst & young world wealth report, 2002 ). second, hedge funds can lead to more wide - spread use of innovative financial instruments and the development of cutting - edge technical and investment skills. unit trusts typically go long - only on listed equities, bonds and cash. in comparison, hedge funds, with their broad investment mandates, can employ a selection of designer instruments and creative investment strategies and face little ( if any ) restrictions on what they can hold. third, hedge funds can add to the liquidity and efficiency of our capital markets. the contrarian instincts of hedge fund managers provide liquidity and help curtail unsustainable asset bubbles. by seeking out arbitrage opportunities, hedge funds also improve the information flow and, consequently, the efficiency of the market. further, specialist hedge funds that invest in unlisted stocks and unrated bonds facilitate fundraising by small, relatively unknown companies. singapore ’ s regulatory approach singapore ’ s approach to regulating hedge funds is risk - focused and differentiated, balancing the potential benefits with the risks that hedge funds could pose to the financial system. hedge fund managers are regulated like any other fund manager that manages third - party funds in singapore. small or boutique fund managers, that manage funds for accredited investors, are subject to less stringent licensing requirements because investor protection concerns are less acute. smaller firms, with fewer than 30 qualified investors, are exempted from licensing. hedge fund managers should find such operating structures conducive, as they are typically small outfits managing funds for a limited number of institutions and high net worth individuals. mas applies the same risk - focused and differentiated approach to the marketing of hedge funds. mas does not regulate offers of collective investment schemes and hedge funds to professional and institutional investors in the financial sector as these investors are adequately skilled to evaluate for themselves the investment characteristics of hedge funds. similarly, financial institutions can offer hedge funds to sophisticated investors on the strength of an offering memo. mas ’ regulatory oversight of the marketing of hedge funds is focused on retail investors. retail investors may not be familiar with the differences between a hedge fund and a typical collective investment scheme. in particular, key aspects such as legal structure, investment objectives, trading strategies and fees may not be fully appreciated. unlike unit trusts where a growth fund usually invests in stocks and an income fund in bonds, there is no simple correlation between investment style and asset exposure for hedge funds. hedge funds also tend to be leveraged and can

monetary dominance prevails, implying that monetary policy is going to tighten by more if fiscal policy is too accommodative. fiscal expansion during and after the pandemic, combined with the activation of the general escape clause under the stability and growth pact for a period of at least four years, from 2020 to 2023, and the lack of a functioning eu fiscal framework, risk contributing to higher inflation, by weakening public perceptions that governments would stabilise public finances by taking the necessary future fiscal adjustments. recent developments in the united kingdom have served as a wake - up call. they have shown that expansionary fiscal policy has its limits. without clear communication about how fiscal spending or broadbased tax cuts are to be funded, markets are likely to expect higher inflation, higher real interest rates or both. abrupt increases in sovereign yields can put debt sustainability at risk and jeopardise financial stability, as shown by the example of the liability - driven investment funds. so far, in most major economies, inflation is expected to return to target over the medium term. [ 20 ] in the euro area, investors do not currently expect high debt levels to cause inflation to persistently deviate from the target, in spite of an upward shift to levels slightly above 2 percent, speaking in favour of central bank credibility and monetary dominance ( slide 12, right - hand side ). monetary policy must stay focused on price stability fiscal policy is hence at risk of contributing to inflation at a time when price pressures remain unabated. inflation in the euro area has continued to surprise on the upside, and significantly so. while fears of a technical recession have increased, economic data surprises have recently also turned positive ( slide 13, left - hand side ). in this situation, monetary policy must remain firmly focused on its mandate and restore price stability as quickly as possible. determined policy action by the ecb has already led to a notable tightening of financing conditions. euro area real gdp - weighted sovereign yields have increased across the maturity spectrum since the turnaround in monetary policy in december 2021. yet, real rates remain in negative territory for most tenors, meaning policy is likely too accommodative ( slide 13, right - hand side ). markets ’ expectations of a “ pivot ” have recently worked against our efforts to withdraw policy accommodation, bringing the actual policy stance further away from the stance that is required to bring inflation back to target. this raises the risks that first round effects from higher energy and food