Draft rules to hamper hedge fund access to Europe: lobby group

Date: Friday, May 21, 2010
Author: Reuters

A draft directive passed by a European Parliamentary body would prevent as much as 80 percent of the world's hedge funds from accessing money from European investors, fragmenting what is currently a global industry, the head of a hedge fund lobby group said on Thursday.

Deals

The European Parliament's Economic and Monetary Affairs Committee on Wednesday passed a draft directive on hedge funds and private equity, whose provisions included a ban on investments in non-European Union funds that did not adhere to conditions set by the EU.

The conditions include a requirement for the non-EU-based fund manager to submit to rulings by European courts on matters arising from the directive.

"Non EU managers from America, Switzerland and Asia, and even EU funds domiciled in places like the Cayman Islands will be affected," Andrew Baker, chief executive of the Alternative Investment Management Association (AIMA), told Reuters.

The United States and other countries may also retaliate against the EU should the directive become law, causing the hedge fund industry to fragment into groups that take money from only a certain part of the world.

"History and common sense tell you that some of the extreme positions will be diluted," he said, adding it was uncertain to what extent the conditions will be relaxed when the actual directive comes into law.

AIMA, which is headquartered in London, represents over 1,100 hedge fund managers, about half of which are based in North America and Asia. It says its members together account for over 75 percent of the $1.5 trillion in assets managed by hedge funds.

Baker said other issues that could arise under the draft European directive include lower investments into emerging and frontier markets as banks acting as custodians may not want to be held responsible for losses arising from fraud and other problems that are more frequent occurrences in such places.