Thu, 30/04/2009 - 07:00
Hedge fund managers are set to face a new layer of regulation at European Union level, amid a global regulatory clampdown on the financial industry in response to the financial crisis of the past 18 months.
Under the proposed rules unveiled yesterday by the European Commission, hedge fund and private equity firms that manage at least EUR100m in assets (or EUR500m if they don't use leverage and impose a five-year investor lock-up) will have to report regularly on strategic investments, performance and risk, and meet 'exacting requirements' on minimum capital, risk management and auditing, according to internal market commissioner Charlie McCreevy.
Unsurprisingly, the rules have provoked criticism from the industry as well as from some EU member states, although not necessarily for the same reasons. The Alternative Investment Management Association described the drat directive as a 'punitive' response to a crisis not caused by hedge funds, noting that most of the European hedge fund industry in Europe is already overseen by the UK's Financial Services Authority.
The initiative is not yet law as yet. It will require need approval from a weighted majority of the 27 EU countries as well as from the European Parliament, and neither can be taken for granted. There is scepticism from the UK, which might be joined by the EU's leading fund jurisdictions, Luxembourg and Ireland.
By contrast, France and Germany have already called for tougher measures. French finance minister Christine Lagarde (pictured) has criticised the draft directive for not going far enough to tighten oversight of the alternatives industry, and the leader of the Socialist bloc in the European Parliament says the rules proposed are meaningless.
But one way or another it looks likely that the EU will eventually impose its rules on hedge fund and other alternative managers. Whether it will do anything for the continent's financial stability or prosperity is another matter.
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