Directive on Alternative Fund Managers

Directive on Alternative Fund Managers

Costs of EU's Directive on Alternative Fund Managers

European hedge funds are facing tough regulation and stiff taxes from the UK and European Union.  Last month, the UK announced that it will begin taxing individuals earning more £150,000 (about $247,000) a year at a rate of 51%.  This decision led many hedge funds to leave the UK for more business-friendly countries, namely Switzerland.

Now, the European Union is considering a law that will effect not only private equity and hedge funds but also EU tax revenues.  The proposed rules are estimated to cost almost $3 billion in its first year and about $1.5 billion each following year.  The Directive on Alternative Investment Fund Managers seeks to regulate and impose capital requirements on funds managing more than 100 million euros.

A significant cost may fall on the hedge funds and private equity firms which will shoulder a major burden in compliance costs.  A recent survey estimates that compliance expenses will rise by about a third from the directive. 
London, home to at least 80 percent of Europe’s estimated $400 billion in hedge-fund assets and about 60 percent of Europe’s private-equity firms, may suffer as funds decide that leaving is easier than complying with new regulations, the survey authors said.

“Thousands of jobs and millions of pounds in tax revenues could be at stake,” according to a report by Mats Persson, research director at Open Europe. “There would be little incentive for fund managers to remain in the EU at all.” The survey showed 2 percent of investors in the funds support the proposal, while 46 percent oppose it.

Britain’s Financial Services Authority last week organized a one-day conference in London about the costs and consequences of the directive, which Paul Myners, the U.K. treasury minister called “flawed.” Poul Nyrup Rasmussen, the Danish former prime minister whose Socialist Party president introduced the legislation, said this month that the proposal may need “tightening.” source

Read about the UK Hedge Funds Tax

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