Merkel Government Approves Hedge Fund Disclosure Bill

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

26 October 2007

The cabinet of German Chancellor Angela Merkel has given its backing to a new law that would force hedge funds to disclose more of their investment activities, and place extra powers in the hands of the national financial regulator to crack down on regulatory abuses by shareholders.

If enacted, the bill would require hedge funds to divulge details of their company takeover bids, including how they intend to finance a takeover, and their aims for the target company when they acquire more than 10% of its shares.

The draft law would also strengthen the power of the financial regulator, BaFin, to limit shareholders' rights to anonymity. Specifically, the law aims to curtail the ability of shareholders to act in concert and influence votes ahead of annual general meetings. It is believed that these proposals are a direct response to Deutsche Boerse's failed takeover attempt of the London Stock Exchange last year, which was blocked by two hedge funds.

"The current practice of acquiring stock undetected only to reveal the scope of voting rights thus acquired just before general meetings will be punishable," the German Finance Ministry stated after the cabinet decision, according to Bloomberg.

New regulations are also being drawn up to regulate the rising practice of selling securities linked to real estate.

While the proposals have met with the approval of Merkel's left-right coalition government, the draft law must be approved by parliament before it can become effective. If parliamentary approval is forthcoming, then it is thought that the bill would become law early in 2008.

Germany has been leading efforts within the Group of 8 nations for a new code of conduct for the hedge fund industry, but thus far its proposals have found only limited support from its partners. While France, under the presidency of Nicolas Sarkozy - who has made no secret of his hostility towards speculative investors - has emerged as an ally to Germany on the issue of hedge fund controls, the US, the UK and Japan are less keen to impose extra regulation on the industry.

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