Regulation covers the avoidance of fraud (to protect investors from their own ignorance or cupidity), the avoidance of money-laundering (nothing to do with bona fide investors) and has prudential aspects, i.e. it tries to prevent investment managers from making risky investments that could lead to loss for investors.

The problem is that well-meaning regulations act as a strait-jacket for investment managers - they create an environment that is suitable for widows and orphans, as they used to be called, but one that is devoid of opportunities for the expert, or even for the moderately well-informed investor. Most people thinking about offshore investment are probably well above average in terms of their ability to avoid fraud, to understand markets, and to select superior investments. These people are ill-served by 'widow and orphan' regulation, and have to look outside their domestic markets for good returns.

This is not to say that good returns and risk can be wholly divorced. It's obvious that junk bonds are riskier investments than triple A sovereign debt, and hence have a higher coupon. It was equally obvious that Russian GKOs, yielding 100% a year, were a risky investment - but the banks which invested in them for five years knew that, and were not surprised when they lost their capital in 1998, even though they made a song and dance about it after the event.

Hedge funds have illustrated the benefits of investment freedom very clearly: they initially almost all chose offshore bases, mostly for regulatory reasons, and their high minimum investment levels will traditionally have deterred the most vulnerable types of investor. Most investors in such funds received returns of 20% or 30% a year for ten to fifteen years until recent years, when an explosion in the number of funds made it harder to make good profits from alternative strategies.

Hysterical accusations that hedge funds increase market volatility are far from the truth: if anything, the opposite is the case. It is the dramatic increase in global liquidity that has increased the apparent size of swings. Hedge funds and derivatives tend to dampen volatility, not increase it.

It is also far from the truth to say that 'onshore = safe' and 'offshore = risky'. Many offshore jurisdictions have high-quality regulatory regimes that quite clearly separate the risky goats from the safe sheep, without constraining investor choice. One of the main goals of www.investorsoffshore.com and its associated sites, www.lowtax.net and www.tax-news.com is to explain the regulatory environment in individual offshore jurisdictions, and to contrast it with the regime in 'high-tax' areas.

See Regulation of Alternative Investment for a fuller description of regulatory regimes in 'high-tax' and 'low-tax' areas, and the freedoms or lack of them which apply to investors in various different residential situations.