EU issues details on hedge-fund regulation

EU-BASED hedge fund managers with more than €100 million in assets will soon be required to register with national regulators under new rules on alternative investments.

After a last-minute change brought the threshold down from €250 million, EU Internal Market Commissioner Charlie McCreevy unveiled yesterday what he called a “carrot and stick” directive that will see accredited managers rewarded with a “passport” to market their products in any country in the 27-member bloc.

The plan exempts managers that lock in investors for five years and avoid leverage – money borrowed to boost returns – requiring them to register and disclose information only if their assets exceed €500 million.

This will mainly affect private equity funds, which tend to raise money, rather than borrow, to buy up companies.

Mr McCreevy, who was under intense political pressure leading up to the directive’s release, said the resulting legislation was “appropriate”.

“To be very brutally frank about it, it is a consensus arrived at,” he said. “What is appropriate? That is the great debate. It’s a bit like beauty.”

However, Socialists in the European Parliament have called the plan “Swiss cheese” and say it leaves the door open for non-EU based managers to operate unregulated.

A provision in the directive does allow for the oversight of foreign funds, but it will only come into force three years after the main proposal becomes law in every member state (which is unlikely before 2012).

Hedge funds and other alternative investments are subject to varying levels of regulation across the EU.

In Ireland, managers and funds are policed by the Financial Regulator. The commission stopped short of including the funds in the proposal because of what Mr McCreevy said would be “a very effective way of killing off the whole industry”.

Irish Funds Industry Association chief executive Gary Palmer said the industry broadly welcomed the move, and that it mirrored what was already going on in Ireland.

However, the UK – which is the centre of the EU’s hedge fund industry – has said the plans could force investors out of the bloc to more light-touch jurisdictions.