AIMA continues opposition to EU draft funds directive

Date: Thursday, July 30, 2009
Author: HedgeFunds Review

The European commission's draft directive on alternative investment fund managers is protectionist and could ban non-EU funds and managers from marketing and distribution within the 27-country group, warned Alternative Investment Management Association (AIMA) in its latest attack on the proposed legislation

"Funds and managers outside the EU face being locked out of the EU market with extremely worrying consequences," said Andrew Baker, CEO of AIMA. "Global industry centres such as the US, Canada, Switzerland, Hong Kong, Singapore, Japan, Australia and South Africa will all be affected by this. This is not just an internal EU matter," declared Baker.

Marketing of funds by managers will only be allowed with a special marketing passport created by the directive. However, the directive also delays its introduction by three years and imposes significant obstacles (such as demonstrating regulatory and tax equivalence) to obtaining it.

AIMA suggested the directive makes it so difficult and costly for non-EU funds and managers to access the EU market that it is clearly protectionist in effect if not in intent. This will have major consequences for non-EU funds and managers (particularly in North America and Asia-Pacific) who will face a major loss of business in the EU. Investors will face loss of choice, increased costs and diminished returns.

EU investors could face a situation where they would only be able to use only EU asset managers of EU domiciled funds investing assets under an EU custodian, claimed AIMA. International investors with EU funds or managers could see costs go up and returns go down because of the restrictions and compliance costs the directive imposes, noted Baker.

"We believe that the provisions of the draft directive with protectionist consequences will not only hit the industry worldwide but weaken the competitiveness of the EU in investment management and make the EU a less attractive destination for international investment. Naturally, we hope that it can be revised to avoid this," concluded Baker.

AIMA, the representative of the global hedge fund industry, has over 1,100 corporate members worldwide, based in 40 countries. Members include leading hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms and fund administrators.

US funds make concerns known
US funds are quietly lobbying Europe to change the terms of proposed draft directive that could place strict rules on any US hedge or private-equity fund doing business in the region, according to Robin Johnson, partner at international law firm Eversheds.

"This is a classic case of how one country's/continent's regulators could have an effect on another country's regulators," he said "The EU rules on hedge funds will have a direct effect on US private equity funds. The answer, as with accounting rules, requires a global solution and consistency of approach," noted Johnson.

He pointed out that in this case the classic US/UK soft touch regulation is clashing with a more rule orientated approach of Europe. "While transparency and disclosure are key specific rules on operational restrictions, they should be resisted and instead investors should decide who they will invest with. The onus should be on the investor to know the fund they are investing in not for the regulators to restrict leverage," he concluded.