Institutional Investors Slam Changes To French Hedge Fund Laws

by Ulrika Lomas, for LawAndTax-News.com, Brussels

19 November 2004

Following the publication on Tuesday in the Journal Officiel of new rules designed to allow institutional investors in France to increase their hedge fund holdings, the AF2I industry body has warned that the regulation may have the opposite effect to that which was intended.

Under the terms of the decree published this week, pension funds, insurance companies and other institutional investors will be permitted to increase their private equity and hedge fund exposure from its current level of 5% to 10%.

However, AF2I argues that as a result of the 10% investment restriction written into the rules governing the ARIA fund category (created last year), which groups together private equity, hedge fund, and fund of hedge fund investments, institutional investors are unlikely to be able to increase their exposure to hedge funds as they have done previously.

According to Reuters, the institutions were able to accomplish this in the past because all funds of funds were considered to be outside of the ARIA category, allowing them to boost their hedge fund investment indirectly.

Speaking to the news service on behalf of AF2I, Jean-Francois Bay suggested that institutional investors in France were likely to end up reducing their hedge fund exposure to between 5% and 6% in order to avoid accidentally breaching the new limits when asset values fluctuate.

In order to address the situation, the industry group has suggested that the government should consider raising the permitted hedge fund investment threshold for institutional investors to 20%, or should alternatively remove funds of funds from the ARIA category once more.

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