–New Legislation Likely Pushed Through Without UK Support

BRUSSELS (MNI) – New legislation forcing hedge funds based outside
the European Union to comply with EU rules before they can market their
investment products to EU citizens are set to be the focus of a meeting
of EU finance ministers in Brussels on Tuesday.

The legislation – called the Alternative Investment Fund Managers
Directive – aims to increase transparency in the E2 trillion alternative
investment market, which includes the hedge fund and private equity
industries.

It requires hedge funds based outside the UK to apply for a license
or “passport” if they want to market in any of the EU’s 27 countries.

The UK – which has strongly opposed the new rules – is likely to be
overruled by other delegations because the Spanish EU Presidency wants
closure on this issue before its six-month term ends June 30.

The draft rules aim at “allowing alternative investment fund
managers to provide services and market funds throughout the EU single
market, subject to compliance with strict requirements,” according to an
EU document.

But there are concerns that the European legislation will make the
EU countries anti-competitive compared to other territories like
Switzerland.

London’s large hedge fund industry would be affected, the UK
argues, because many fund managers based in the UK’s capital manage
assets based in other territories like Bermuda or the Cayman Islands.

The UK argues for an approach that considers where the hedge fund
manager is based, rather than the actual fund.

But the legislation is politically charged, with countries that
don’t have large hedge fund industries, such as France, pushing for a
clamp down on the funds, which, they tell their voters, contributed to
recent market turmoil.

The UK Chancellor of the Exchequer George Osborne will attend the
meeting, but he is unlikely to be able to influence the legislation
because of its advanced stage.

If agreement can’t be reached on Tuesday, the legislation will be
passed by a qualified majority vote among the ministers, sources in the
Spanish Presidency said.

Once the finance ministers have approved the new legislation, it
must go through the European Parliament, probably in mid-July.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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