New French Hedge Fund Rules Awaiting Approval

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

10 November 2004

The French financial regulator, L'Autorite des Marches Financiers (AMF) announced on Monday that new rules permitting the launch of the country's first onshore hedge funds are now awaiting the approval of Finance Minister Nicolas Sarkozy, which will be granted, it is expected, by the end of November.

The new regulations, the result of several months of intense negotiation on the matter, will allow institutional investors to invest in hedge funds via a newly created type of fund known as an ARIA (A regle d'investissement allegee) fund.

Speaking to Reuters, an AMF spokesman revealed that several key areas of disagreement between the regulator and the finance industry have now been cleared up, citing performance fees as one such example.

However, he went in to reveal that there is still some confusion over the role of prime brokers in the French finance industry. Prime brokers provide securities lending and stock borrowing services to hedge funds in order to allow them to leverage their positions and take short positions on stocks.

Currently in France, there is no prime broker status, and French banks have suggested that they are reluctant to act both as custodians and prime brokers for hedge funds, with the increased risks that such a role would entail.

Therefore, according to Reuters, the AMF has proposed that prime brokers be permitted to operate in the French markets for the first time, and that they and the banks divide the responsibility for the newly created sector between them.

It is hoped that with such a compromise in place, the first investments in hedge funds via ARIA funds can take place in December.

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