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European Asset Management Body Calls For Harmonisation Of EU Hedge Funds

by Ulrika Lomas, for, Brussels

30 November 2005

The European Fund and Asset Management Association (EFAMA) is calling for the harmonisation of hedge fund products within the European Union, describing the current situation is very fragmented.

A new comparative survey on this topic conducted by EFAMA comes to the conclusion that there are at least two options for possible further action at EU level regarding the issue.

One option would be to seek a harmonisation of the product at EU level, for example through amendments to the existing UCITS Directive (Undertakings for the Collective Investment of Transferable Securities). The other would be to focus on the type of investor to whom a fund is offered, for example by harmonising private placement rules for funds. This could be part of a broader regulatory scheme that would include the distribution of financial instruments.

These are the key findings of a comparative survey “Hedge Funds Regulation in Europe” conducted by EFAMA in collaboration with ASSOGESTIONI, its Italian member association.

The survey's starting point was the listing of the common factors that characterise the rules governing this particular investment product in various countries, namely France, Germany, Ireland, Italy, Luxembourg, Spain, Sweden and Switzerland.

The survey revealed the existence of a partial, almost surreptitious “de facto harmonisation” of the European hedge fund regulations. However, a number of inconsistencies in the regulatory frameworks for hedge funds in the individual Member States appeared: for example, a minimum level of underwriting for purchasing shares in the hedge fund is not always specified, nor is there a set maximum number of participants in the fund.

The EFAMA survey also noted that while hedge funds allowed to deal directly with the retail sector are not always constrained by identical restrictions on investment (in terms, for example, of limits on the use of leverage or, for funds of funds, of target hedge funds to invest in), those systems governing hedge funds as a “selective” product prohibiting distribution amongst the general public do not adopt uniform rules for “private” investment. The present regulatory framework in these countries does not foster a single market for hedge funds.

EFAMA President Stefan Bichsel explained that: “In the current fragmented regulatory panorama, the need was felt for a survey analysing the state of regulation in Member States."

Steffen Matthias, Secretary General of EFAMA, added that: “This study should serve as one of the pillars of the forthcoming work of the Commission’s Experts Group which is to be established in the follow-up to the Green Paper on investment funds."

EFAMA, is the representative association for the European investment management industry. Through its member associations from 19 EU Member States, Liechtenstein, Norway, Switzerland and Turkey, as well as its corporate members, EFAMA represents at mid 2005 about EUR 12 trillion in assets under management, of which EUR 5.9 trillion is through about 43,000 investment funds.

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