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German govt wants to limit hedge funds to professionals

Date: Thursday, July 26, 2012
Author: Reuters

German Finance Minister Wolfgang Schaeuble wants to limit direct investment in hedge funds to professionals in order to protect private investors from risky assets, via a new bill regulating alternative investment funds, his ministry said on Wednesday.

"Interests in single hedge funds will in future only be able to be held by professional investors," reads a draft of the bill on investments, which was published on the finance ministry's website and is being discussed with the investment industry.

"To reinforce the protection of investors, private investors will no longer be able to invest directly in this high-risk class of investments," says the 545-page document.

The draft bill will be submitted to Chancellor Angela Merkel's cabinet for approval after the summer break and has to be enacted by July 2013 to comply with new European Union rules on riskier investments, said a finance ministry spokesman.

"The stated aim of this law is to provide protection to private investors against especially risky investments," finance ministry spokesman Johannes Blankenheim told a news conference.

Tougher EU rules for hedge funds are part of a wider move to stricter regulation of the financial industry in the wake of the financial crisis and the euro zone sovereign debt crisis.

Private investors' access to hedge funds would be limited to "umbrella" hedge funds which spread the risk across a number of funds, and which will in future have to carry a health warning, reads the proposed bill.

Any sales prospectus for an umbrella hedge fund would have to carry the advice: "The finance minister warns: this investment fund invests in hedge funds, which are not subject to any legal limitations on leverage or risk."

German media said the investment industry is unhappy with Schaeuble's plans. The Berliner Zeitung newspaper quoted Frank Dornseifer of the Association of Alternative Investments (BAI) saying as saying the prohibition was "contradictory".