EUROPE: EU proposal on non harmonised funds met with mixed views

Wednesday April 29 2009

The European Commission has today proposed a Directive on Alternative Investment Fund Managers (AIFM). At the end of 2008, AIFMs including the managers of hedge funds and private equity funds managed around Euro 2 trillion.

The main issue in the draft directive is the mandatory requirement aimed at achieving enhanced levels of transparency; AIFMs to register and disclose their activities to regulators, while at the same time easing their access to European markets.

These regulatory controls apply to managers and not the funds themselves as it is the managers who are responsible for taking major decisions. Thus, while fund managers would have to be registered in the EU, the funds would not. Critics say that this allows off-shore funds to market their products without effective registration or regulation.

In the pre- official publication version of the draft directive, only EU domiciled AIFM with assets under management worth over Euro 250 Million were coming within the ambit of the directive. Following pressure from critics, the published version has lowered this threshold to Euro 100 Million.

The directive proposes that once a manager is registered in an EU Country, he will have access to all EU markets. This will make it easier for Hedge fund managers to market products throughout Europe.

Furthermore, after a transitional period of three years, third country funds complying with stringent requirements on regulation, supervision and cooperation, including on tax matters will also have access to the EU market.

The draft directive has overall been met with mixed views; critics feel that the directive does not address its main purpose and was prepared without consultation, the AIMA said that the directive is not a proportionate regulatory response to any of the identified causes of the current crisis.

Poul Nyrup Rasmussen, President of the Party of European Socialists (PES) is critical of the fact that the draft directive covers only EU-based fund managers and that the proposal is a formality without the real requirements.

Florence Lombard, AIMA Executive Director, said, “This directive is not a proportionate regulatory response to any of the identified causes of the current crisis. All of the major reports which analysed the crisis in-depth, including the de Larosiere report and the Turner Review, concluded that hedge funds neither caused nor played a significant role in the crisis. This directive undermines the findings of these reports and the vast amount of work that is currently being undertaken by the G20, IOSCO and the Financial Stability Board. It also conflicts with the G20 `s global plan for recovery and reform which calls for regulators and supervisors to reduce the scope for regulatory arbitrage ` and to resist protectionism `.

On the other hand, Jarkko Syyrilä, IMA Director of International Relations while welcoming this development said: “The IMA has long been calling for firms to be able to distribute hedge funds, property funds, and other non-harmonised funds cross-border to institutional investors. The proposed directive incorporates this&hellip.`

The Directive has now been submitted to the Council and the European Parliament for consideration under the co-decision procedure.

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