EC hedge fund proposals will just not work - Aima

Date: Thursday, May 7, 2009

Plans put forward by the European Commission for tighter regulatory control of hedge fund managers are not a proportionate response to the current crisis, according to the Alternative Investment Management Association.

Last week the European Commission stated the objective of its alternative investment fund managers' directive was to ensure all managers were subject to appropriate authorisation and registration requirements.

The proposed directive hopes to provide a framework for the enhanced monitoring of macro-prudential risks through sharing of relevant data among supervisors.

It also aims to improve risk management and organisational safeguards to mitigate micro-prudential risks, enhance investor protection, improve public accountability for alternative investment funds holding controlling stakes in companies and to develop a single market for the alternative investment fund manager.

Alternative investments include hedge funds, private equity funds, commodity funds, real estate funds and infrastructure funds.

Florence Lombard, executive director of Aima, an international trade body for the hedge fund industry, said the proposals were hastily prepared and had been put together without consultation.

She said many of the provisions were ill-considered, impractical and could prove unworkable.

The unintended consequences of the measures could put thousands of jobs in several major European industries under threat and slow down any economic recovery, Ms Lombard added.

She said: "All of the major reports, which analysed the crisis in-depth, including the de Larosiere report and the Turner Review, concluded hedge funds neither caused nor played a significant role in the crisis.

"This directive undermines the findings of these reports and the vast amount of work that is currently being undertaken by the G20, the International Organisation of Securities Commissions and the Financial Stability Board.

"It also conflicts with the G20's global plan for recovery and reform, which calls for regulators and supervisors to reduce the scope for regulatory arbitrage and to resist protectionism."

Charlie McCreevy, European commissioner for the internal market and services of the European Commission, said: "While hedge funds are not a cause of the current crisis it is generally accepted that they can pose risks to the financial system.

"We have followed the G20 agreement to the letter. Hedge funds managers will have to register in the European Union and be subject to supervision and strict controls, including on their levels of leverage.

"Supervisors will have all the powers necessary to intervene in case the leverage of hedge funds - either individually or collectively - poses a threat to the stability of the financial system."

Mr McCreevy added private equity managers will need to produce disclosures for key stakeholders, including employees, this will help to improve the transparency and accountability of the buy-out activity.