Hong Kong Wants Time for Hedge Funds to Meet New EU Rules

Date: Tuesday, October 19, 2010
Author: Netty Ismail and Rishaad Salamat, Bloomberg

Hong Kong’s government is in talks with the European Union to help hedge-fund managers in the city cope with proposed regulations that may make it harder to raise assets in Europe.

Hong Kong is lobbying the EU for a “dual regime” which would allow the current system under which they raise assets to continue for “a number of transition years” before complying with Europe’s “passport regime,” said Julia Leung, Hong Kong’s undersecretary of financial services and the treasury.

“If the threshold is set too high for assets into the EU market, then it will disrupt our business,” Leung said today at the Hedge Funds Asia Summit hosted by Bloomberg Link in Hong Kong.

The European Commission, the EU’s executive arm, proposed rules last year to regulate hedge-fund and private-equity managers, which would restrict bonuses and require investment strategies to be disclosed to regulators.

EU officials have proposed a “passport” law that would force funds based outside the EU to comply with the commission’s rules if they want to market themselves to investors in the 27- nation bloc. Germany and France are seeking to block the proposal, with France opposed to giving pan-EU marketing rights to funds run offshore, preferring member states keep control of products sold in their markets, the Financial Times reported last month.

“Certainly it would be very unfair if local managers are asked to adapt regulation meant for European managers just because we take money from Europe,” said Christophe Lee, Hong Kong-based managing director at FrontPoint Partners LLC, the Morgan Stanley hedge-fund unit. He was speaking at the same conference in Hong Kong today.

‘Massive’ Effect

“The regulation in Hong Kong is regarded as very fair, transparent, predictable and it works,” said Lee, who is also chairman of the Hong Kong chapter of the Alternative Investment Management Association.

The European directive “has a protectionist effect,” Lee said. “This could result in a tit for tat trade war of some sort. Anything with the word war in it, there are no winners so we must avoid that scenario.”

Han Ming Ho, a partner at Clifford Chance, one of the first international law firms awarded a Singapore license, said “new legislation in the U.S. and Europe will have a ‘‘massive extraterritorial effect’’ on Asian hedge-fund managers who rely on investors there for capital. Ho is also chairman of the Singapore branch of the Alternative Investment Management Association.

Banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. are complying with the Dodd-Frank financial-overhaul act in the U.S. that prohibits them from risking capital by betting for their own accounts. The law also seeks to force hedge-fund advisers to register with regulators, with those managing more than $100 million set to face oversight from the Securities and Exchange Commission. Those with smaller portfolios will be overseen by the states.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net