Hedge Fund Body Questions EU Proposals For Regulatory System

by Ulrika Lomas, Tax-News.com, Brussels

26 January 2004

The Alternative Investment Management Association (AIMA), the body which represents the global hedge fund industry, is seeking a meeting with members of the European Commission to clear up “several misconceptions and inaccuracies” contained in the proposals for a pan-European regulatory framework for the industry.

Earlier in the month, the European Parliament voted to adopt an ‘own initiative’ report by Scottish member John Purvis which proposed a “light handed” regulatory hedge fund regime, concentrating particularly on the competency of fund managers and directors, and on investor protection against illegal distribution and sales methods.

However, in a statement released last week, AIMA observed that: “Whether the proposals will ultimately lead to a specific regulatory regime for ‘sophisticated alternative investment vehicles’, or ‘SAIVs’, applying throughout the European Union is, perhaps, less certain.”

The statement continued: “Furthermore, if a uniform Europe-wide vehicle for products such as hedge funds were created, attracting ‘lighter touch’ regulation, as advocated in the proposals, it would also require harmonisation of marketing rules across Europe and removal of domestic tax discrimination.”

European governments have yet to fully embrace the hedge fund industry, and have generally adopted a cautious approach to alternative investment funds. Consequently, the legal framework has developed in a rather haphazard manner.

Whilst Italy allows hedge funds and funds of funds above EUR500,000, France only allows domestic hedge funds and does not permit direct investment. The UK is perceived as the capital of the European hedge fund industry, although funds are strictly off-limits to retail investors. Germany meanwhile has only recently allowed foreign funds to establish and market products within the jurisdiction.

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