Dr. Martha O'Hagan-Luff:

There could be regulated and unregulated funds; it is not that they would have to be unregulated in order to invest in riskier assets. The reason that some funds would remain unregulated is because it gives them more flexibility. For example, many funds would not be allowed to buy or sell derivatives or short-sell assets, and the other example is to invest in below investment-grade bonds. Some of those constraints might be from investors, so there is a spectrum of funds where some are safe and some are riskier. The less regulated a fund is, the fewer disclosure and reporting requirements it has.

It is not whether they are regulated or not - that is a choice on a spectrum in respect of flexibility in regulation. If investors are happy for funds to remain unregulated - which gives more flexibility to invest in riskier assets - then that is a conversation, potentially, between the investor and the fund. It is up to the regulator in each jurisdiction as to how much regulation should be attached to different assets.