U.S. takes centre stage in EU hedge fund row

Date: Tuesday, July 28, 2009
Author: Laurence Fletcher, Reuters

* Hedge fund body AIMA says directive "protectionist"

* Says rules will limit choice, hit competition

* U.S. lobbying for changes to proposed rules

Debate over controversial EU laws on hedge funds shifted to the United States on Monday as a key industry body warned of protectionist aspects of the rules which have prompted Washington to lobby for changes. The Alternative Investment Management Association (AIMA) said the planned laws on alternative investment funds create "potentially major difficulties" and loss of business for funds and investors outside the European Union.

It said the rules would limit European investor choice and damage the competitiveness of the European funds industry.

The vast majority of the $1.4 trillion hedge fund industry is managed either out of the United States or UK.

The draft directive, announced in April, allows managers in non-EU countries to sell their funds to European investors, but only if regulation and supervision is equivalent to that in Europe, and only after a three-year transition period. On Monday the Wall Street Journal reported that the United States is quietly lobbying Europe to change the terms of the directive.

The paper said that U.S. Treasury officials have been talking with both their counterparts in European governments and European Commission officials in Brussels, and are also pushing their agenda in international forums such as G7 meetings.

U.S.-based funds, meanwhile, have told the Treasury of their concern and are doing their own lobbying in Brussels and in capitals like London, the paper said, citing an unnamed source.

"LOCKED OUT"

AIMA has previously been focused on the narrow impact in Europe of the directive, but has switched emphasis to draw in potential global concerns [ID:nN17328124].

"Funds and managers outside the EU face being locked out of the EU market with extremely worrying consequences," said AIMA chief executive Andrew Baker in the statement.

"Global industry centres such as the United States, Canada, Switzerland, Hong Kong, Singapore, Japan, Australia and South Africa will all be affected by this. This is not just an internal EU matter." AIMA added that the directive is "clearly protectionist in effect, if not intent" and that non-EU funds face "a major loss of business" in the region.

"Investors will face loss of choice, increased costs and diminished returns," it added.

The directive on Alternative Investment Fund Managers has attracted plenty of criticism from the hedge fund, private equity and real estate industries over its proposed controls on leverage and disclosure demands for private equity portfolios