The regulation of hedge funds and private equity, via the Alternative Investments Fund Management Directive (AIFMD), was debated at the Financial Services Authority’s (FSA) annual Asset Management conference last week.
Lord Myners, the City Minister, opened the conference with a call to action, saying the industry must voice “a thorough understanding of the problems the legislation in its draft form would cause Britain”.
Myners criticised the “one size fits all approach” of the draft directive, which he said was “trying to conflate widely differing asset styles and groups into a single directive at the erosion of practicability.”
He said that proposals for placing leverage caps on hedge funds, and those setting out the duties of a depository, including the strict liability of custodians, were not supported by sufficiently robust analysis or understanding.
Myners warned that proposed disclosure obligations for private equity investors, for both target companies and those they own, would discourage them from investing in Europe. Britain accounts for 80% of European private equity business.
David Wright, the deputy director general of DG Internal Markets and Services at the European Commission, said the draft policy had been drawn up “in taut and difficult political and economic circumstances.”
Wright said there was global agreement that appropriate supervision for hedge funds and private equity was required, and that “in dealing with systemic risk, national approaches were not enough”. But he sought to assure delegates that “Europe has not damaged the City and that would not be the case here”.
Jean-Pierre Jouyet, the chairman of the Autorité des marchés financiers, raised French objections to the proposed “passporting” of funds, which would allow funds to travel freely through the EU, overseen by domestic regulators.
He suggested that passporting should be limited to firms domiciled in Europe, saying “it is common sense to protect ourselves by controlling who comes through the front and back doors”.
David Vaughan, a senior fellow of the Securities and Exchange Commission (SEC), voiced American concerns on the draft legislation, saying it could lead to the exclusion of American fund managers from the European market.
Vaughan suggested that managers should be able to provide services if willing to be regulated by the investor’s jurisdiction, regardless of whether similar regulation existed in their own market.