World's biggest hedge funds oppose EU cap on leverage

Date: Monday, June 22, 2009
Author: Rowena Mason, Telegraph

A group of major hedge funds, including Man Group, Brevan Howard and BlackRock, have joined forces to oppose a European Union directive that threatens to put a cap on leverage.

New rules could impose limits restricting borrowing for big deals above one times the value of assets, with a damaging impact on hedge and private equity funds across the globe.

The hedge funds – also including CQS, DE Shaw, Fauchier Partners, Lansdowne Partners and Marshall Wace – have set up a steering group under the umbrella of an industry body, the Alternative Investment Management Association (AIMA).

AIMA is deeply concerned that strict regulation championed by France and Germany could be rubber-stamped by the European Union.

Andrew Baker, chief executive of AIMA, said the regulations were "at best clumsily-worded and at worst a significant threat to the industry".

"The idea that one times shareholder assets is highly leveraged is perfectly ludicrous," he said. "Most damaging is also discrimination against any fund manager not set up in the EU, which is very worrying to the Americans. It is not very clearly written and was obviously done in a hurry. Much of it needs to be redrafted urgently."

One hedge industry source expressed fears that it could cause "hundreds of funds to shut down overnight" or relocate outside Europe. AIMA's members manage 75pc of global hedge fund industry assets.