Crunch time for Europe's new hedge fund regime

17 May 2010

Tomorrow the European Parliament votes on proposals for tighter regulation of alternative investment funds.

The French-inspired Alternative Investment Fund Managers Directive is mainly aimed at hedge funds, some 80 per cent of which are domiciled in London.

Most observers expect it to be accepted by MEPs. It will then be passed to the EU's Council of Finance Ministers for consideration at a meeting on 18 May.

However, the UK government is still opposing the planned restrictions on hedge fund investing. New UK chancellor George Osborne is travelling to Brussels in a last-minute attempt to postpone the vote.

Financial institutions in London and elsewhere in the world have also sent their objections to the European Commission, which is sponsoring the new regime.

One of the most controversial sections of the directive is the so-called "third party" rule, restricting the ability of non-EU funds to raise money from investors in Europe.

A consortium of trade bodies has written to the European Parliament warning that this will discourage European funds from investing overseas, and thus force down returns.

Moreover it might provoke retaliatory action from non-EU jurisdictions, especially the USA which is vigorously opposing the directive.

The Cayman Islands financial sector, itself heavily populated by hedge funds, is also worried about the EU directive.

Anthony Travers, chairman of Cayman Finance, has written to MEP Jean-Paul Gauzes, who is chairing the European parliamentary debate, seeking ways in which EU-based fund managers "can continue to benefit from investment by Cayman Islands investment vehicles".

 

Sources

Bloomberg (via Businessweek)

Daily Telegraph

Reuters

Cayman Finance (Letter to Gauzes)


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