EUROPE - The hedge fund industry is protesting against the reinsertion of what is considered to be a ‘protectionist' clause in the EU's proposed Alternative Investment Fund Managers Directive of provisions, relating to third country dealings.
The latest draft of the legislation reintroduces wording to tighten control of the alternative investment sales from entities based outside the European Union.
Under an earlier version produced by the European Parliament's rapporteur, Jean-Paul Gauzès, the marketing of non-EU funds into the EU would be allowed from their own territory, provided a member state gave its approval to the third country's rules. And for that third country fund to be permitted to be sold across national borders, each national authority concerned would have to give its own clearance.
The new Spanish Presidency version of the AIFM contains additions to Article 34b which specify "Member States may allow AIFM established in the European Union to market to professional investors on their territory shares or units of AIF they manage that are established in a third country", on condition that "appropriate cooperation arrangements are in place between the competent authorities of the home Member State of the AIFM and the supervisory authority of the third country where the AIF is established."
Treading parallel ground, Article 35 also covers the conditions for the marketing in the EU if an AIF is "managed by an AIFM established in a third country". Here its position is not dissimilar as text specifies that third country AIFMs may be marketed in member states territories provided that "appropriate cooperation arrangements are in place between the competent authorities of the Member State where the fund is marketed and the competent authorities of the AIFM."
The condition, "appropriate cooperation … " has set off alarms at the Alternative Investment Management Association (AIMA) and officials at the hedge fund body have the reinstatement of Article 35 into draft legislation as "protectionist".
It noted Article 35 had been removed from the Directive by the previous Swedish Presidency.
AIMA's chief executive officer, Andrew Baker, said: "Stipulating that these co-operation arrangements must be in place sounds reasonable enough, but we are worried that they would be difficult to establish and to comply with.
The practical consequence would be that the EU market would be closed to non-EU funds and managers with obvious protectionist implications."
Baker argued any restrictions imposed on European investors would also hit asset managers in financial centres in the US, Canada, Switzerland, Hong
Kong, Singapore, Japan, Australia and South Africa.
The legislative package is undergoing a "co-decision" process which requires the European Parliament and European Council to work together, simultaneously. Their aim is to clear through an agreed version of the legislation by the middle of 2010.
Mr Gauzès version, announced late last year, has been subject to 2000 amendments presented by MEPs. An airing of the amendments, which so far have not been published, is likely at the Parliament's next Economic and Monetary Affairs committee (Econ) on Tuesday 23 February.
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