The Independent

European Hedge Fund Crackdown Sputters


The European Union's plans to clamp down on hedge funds and private equity firms have stuttered after a key vote was delayed for the third time. The rules are expected to prompt an exodus from the City of London.

The European Parliament's Economic and Monetary Affairs Committee was due to vote on the controversial Alternative Investment Fund Managers (AIFM) directive yesterday. The chairman of the committee, Sharon Bowles, revealed that the vote has been moved back a week, so "more consideration can be given to the opinion of the Legal Affairs Committee."

Andrew Shrimpton of the consultancy Kinetic Partners said: "They are clearly finding it difficult to reach a compromise. It's good news for the City."

The directive would require hedge funds and private equity companies to be more directly supervised by the EU.

The rules are due to come into force in 2012. They were drawn up to prevent alternative investors from putting money into offshore tax havens and are expected to introduce curbs on pay. The Confederation of British Industry (CBI) complained that the rules forced disclosure of commercially sensitive information.

The majority of hedge funds and private equity companies are based in the UK, and domestic policymakers fear that tighter regulation will prompt an exodus to Geneva, Asia or the Middle East. The Chancellor, Alistair Darling, said in March: "Tougher regulation is necessary. But nor can there be a deal at any price. Europe must get this right."

Britain is opposed by a faction led by the French and Germans who favour clamping down on two industries they see as causing systemic damage to the financial markets.

The US Treasury Secretary, Tim Geithner, has called the regulation protectionist, and America has threatened to hit back.

The CBI yesterday called for MEPs to vote down several of the provisions within the directive, saying that some of the measures would have the effect of "stifling business innovation."

Nearly 700 companies signed a letter to MEPs warning of the dangers of the directive, as did BusinessEurope. Andrew Baker, the chief executive of the Alternative Investment Management Association, wrote an email to Jean-Paul Gauzès, the rapporteur of the directive, warning over the issue of non-EU investors putting money into the region. It feels the move would "result in Europe closing its borders to the detriment of its own investors."

Uli Fricke, chairwoman elect of the European Private Equity and Venture Capital Association, said last week: "Rushed initiatives such as the AIFM Directive will crush venture and other sources of innovation capital, putting Europe's brightest young companies at a disadvantage."

The first vote was delayed to allow for more discussions, and it was delayed again to make sure all parties would be present at the vote.

from London, for Independent minds


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