On their surface, the new rules would provide for a single EU passport for hedge funds. So far, so good. However, the process of adopting these controversial proposals has brought to light deep divisions among member states about the role of alternative investment firms in national and European financial services industries.
Prior rounds of negotiations have lead to a stalemate between those in Europe who favor a strict stand against hedge funds and those who want to regulate, but not eliminate, these funds.
Belgium, which current chairs the rotating EU presidency, has attempted to bring the warring factions to a compromise, but has been unable to restart negotiations ahead of the scheduled September 20 vote.
At issue is whether non-EU firms, such as those based in Greenwich, CT, or Boca Raton, FL, for example, would have access to the passport.
Resistance is high in many quarters, such as France. The result of denying access to the passport would be to put American funds at a distinct disadvantage to their local competitors in regards to fundraising efforts. European investors would also be limited in their ability to access the best talent available.
Whether American fund managers will benefit from a “single market” for hedge funds, or be locked out of a “Fortress Europe”, remains to be seen.