Hedge Funds EU Alternative Directive

EU Discusses Alternative Investment Fund Directive

Hedge funds and the European Union are coming to a showdown over the Alternative Investment Fund Manager directive. The EU parliament and Council are discussing the directive this week and going through the 1,300 amendments. The bill would require much greater regulation of the hedge fund industry and other alternative investment funds, but there remain significant questions in the directive. The Wall Street Journal has more on the problems in the Alternative Investment Fund Manager directive:

Some of the most worrying proposals have been watered down. Restrictions on leverage have been lowered, although individual member states can still impose their own caps if they judge financial stability to be at risk. Minimum capital requirements remain, but will be weaker for non-leveraged funds, while larger funds will be able to hold up to 50% of the capital requirement in the form of a guarantee; minimum liquidity requirements are likely to be scrapped. Burdensome rules requiring private-equity firms—but not other unlisted owners—to provide detailed financial information on portfolio companies have also been weakened.

But three major concerns remain and one new one has been added. First, the directive will make prime brokers liable for losses on assets in their custody, likely leading to higher costs for investors. Second, the directive currently requires prime brokers to be EU credit institutions, which rules out many of the top US houses. This is already favoring business flows towards the bigger European custodians, according to industry sources. Third, member states will still be able to prevent the marketing of offshore funds to retail investors, which could trigger reciprocal moves against EU funds by other jurisdictions. Source

Related to: Hedge Funds EU Alternative Directive

Tags: