Wanted: real-life, good news hedge fund stories

Date: Thursday, September 10, 2009
Author: Syed Kamall, Cityam.com

One consequence of Britain’s membership of the EU is that Brussels gets to govern the way business is done in London. Hedge funds, private equity and venture capital are the main targets of the European Commission’s proposals for an Alternative Investment Fund Managers Directive (AIFMD).

The Directive has the backing of a coalition of Christian Democrats and Socialist MEPs as well as the French and German governments – long envious of London’s role as host to 80 per cent of hedge funds and 60 per cent of EU private equity funds.

The British government knows that if it fails to stop the directive, there will be damaging consequences for the City. It would prevent funds based outside the EU marketing themselves here, allow the commission to impose minimum capital requirements and leverage restrictions on funds (regardless of the needs of clients), and require all funds marketed in the EU to deposit its cash and assets with an EU-approved financial institution. New requirements on disclosure are also likely to put funds managed in the EU at a disadvantage.

The consequences of the new regulations will be fund managers relocating outside the EU. But this does not matter to the directive’s fans; they do not care about the value to London and the UK of hosting a world-beating financial services centre. Nor does it matter to them that hedge funds did not cause the credit crunch or that regulation and poor supervision were partly responsible for the sub-prime crisis. They need to be seen to be blaming someone and they are focusing on hedge funds and private equity managers who they see as “bonus-seeking fat cats.”

Having so far failed to persuade its partners of the City’s case and having failed to persuade the European Commission to carry out a thorough economic impact assessment, the government is hoping that what happens in Brussels is not picked up by the media and that any political fallout from this disastrous directive can be avoided. But have they understood the severe consequences for all of us?

It is not just people’s jobs here in London that are at stake: the value of people’s pension funds, the availability of start-up capital to entrepreneurs and funding for innovative goods and services will all be reduced too. Struggling companies will fail, jobs will be lost and communities destroyed if private equity and hedge funds are unable to buy and turn around companies.

I am convinced that the knock-on effects will be felt not just in London, Frankfurt and Paris but across the EU. But to explain to my MEP colleagues how their constituents’ interests are affected, I need practical examples of how private equity or hedge funds are providing the capital which underpins the provision of jobs, goods and services to European citizens. If you have a real life story of how the hedge fund and private equity industry has changed people’s lives for the better, please contact me at syed.kamall@europarl.europa.eu

Syed Kamall is Conservative MEP for London and a Shadow Rapporteur on the AIFMD.