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New York (HedgeCo.net) – A draft copy of a law obtained by Ruters from the European Commission is looking at how hedge funds are paid, and may ask hedge fund managers to prove that the pay structure does not encourage risk-taking.
The pay structure recommended by the Swedish contingent of the European Commission demands a balance for the amount that hedge fund managers get paid as salary and bonuses. Among other conditions, the new law demands that “variable remuneration” spread over “at least three years” and in cases where the “variable element is particularly high”, then 60pc of the pay should be deferred.
“Because of these looming hedge fund regulations put forward by the European Commission, we very likely to see London lose its reputation as a hedge fund hot spot. ” said Andrew Schneider, Co-founder of HedgeCo Networks.
BlueCrest Capital Management, the $15.4 billion hedge fund has joined Europe’s largest hedge fund, Brevan Howard Asset Management LLP, to announce the creation of offices in Switzerland. BlueCrest Capital management is planning to move a 50 of their 300 employees from their London office to a Geneva based office which will not be under the jurisdiction of the European Commission.
Hedge funds are demanding an alteration to the proposal.
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New York (HedgeCo.net) – Based on two surveys of private equity managers and hedge fund managers, carried out during August 2009, Open Europe has published the most comprehensive study to date of the likely impact of the EU’s proposed Alternative Investment Fund Managers (AIFM) Directive. Among the findings is that the hedge fund and private equity industries contribute €9 billion ($13.3 billion) in tax revenues to European Union (EU) governments.
Open Europe said that the €9 billion ($13.3 billion) tax contribution would be enough to fund the EU’s entire overseas aid budget for 12 years. The tax contribution also matches the value of the EU’s Cohesion and Aid Programmes for Poland and is just short of the subsidy that France receives each year under the EU’s Common Agricultural Policy.
“Alternative investment fund managers provide investments and create growth, jobs and more efficient markets across Europe,” the report said.
The survey also found that the UK hedge fund and private equity industries contribute about €6.1 billion ($9 billion) in tax revenues to HMRC. Open Europe said this would be enough to pay for more than 200,000 nurses, 45,000 hospital consultants or 165,000 teachers. In just two years, the tax revenues generated by alternative investment fund managers would be able to pay for the entire 2012 London Olympics, according to Open Europe. But if the tax revenues were to disappear, Open Europe said it would take a 20% increase in council tax in order to make up the shortfall.
The European Commission’s Alternative Investment Fund Managers (AIFM) directive would cost the hedge fund and private equity industries in the EU between €1.3 billion and €1.9 billion ($1.9 billion and $2.8 billion) in its first year, if implemented in its current form. The annual recurring cost would be between €689 million and €985 million ($1 billion and $1.4 billion). Respondents said their total compliance costs would increase by almost one-third on average.
The report commented: “Our surveys show that unless a range of amendments take place, the AIFM directive will impose substantial costs across the board, without offering sufficient benefits for the industry, investors and the wider economy… In a worst-case scenario, thousands of jobs and millions in tax revenues could be at stake.”
Open Europe received 121 responses from hedge fund managers and fund of fund managers representing $342 billion assets under management. Just over half of the respondents came from managers located in the UK, while over one-fifth came from the rest of the EU and around one-quarter from the rest of the world. Open Europe also received 41 responses from private equity managers primarily based in the UK, representing funds under management of over $204 billion.
Alex Akesson
Editor for HedgeCo.net alex@hedgeco.net HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
A delegation of American congressmen is flying into Brussels this week to dispel mounting trade tensions between the US and Europe over hedge funds.
Worries centre on the European Commission’s directive on alternative investment fund managers. The hedge fund industry claims that if it is enacted according to the current draft, it could cost European pensioners up to €25bn a year by shutting out American and other non-EU based investment vehicles. That would result in a major reduction of choice for large investors, who as a consequence would suffer increased costs and lower returns.
The New York Times – London’s mayor, Boris Johnson, an advocate of protecting the city’s financial sector from over-regulation, will take the fight to protect Britain’s hedge fund and private equity industry to Brussels this Wednesday, The Daily Telegraph reported.
Mr. Johnson is scheduled to meet with senior members of the European Parliament and Charlie McCreevy, the head of internal markets for the European Commission, in an effort to thwart potential regulation in the form of a draft European directive, which includes radical proposals on fund-raising and capital requirements.
The Independent – Grimly aware that a European Commission crackdown on regulation of hedge funds and private equity spells disaster for the EU’s predominantly London-based industry, Treasury ministers have been desperately lobbying their counterparts in Brussels for months, but their pleas have fallen on deaf ears.
Now, however, the Americans have woken up to the fact that many of their hedge funds would find it impossible to do business in the EU under proposals for regulatory reform. In recent weeks, US Treasury officials have thus been touring the EU, letting their displeasure be known.
It appears that the Americans’ involvement is already paying dividends. Sweden, which holds the EU presidency, was quietly letting it be known yesterday that it will ensure some sort of compromise is brokered. The Alternative Investment Management Association, which represents the sector’s interests, now thinks disaster may be averted.
Reuters AlertNet – The newly elected European parliament starts its five-year term on Tuesday in a combative mood which could slow the passage of laws intended to fight Europe’s worst economic crisis in decades. At its first session since an election in June, the assembly will put off for at least two months a vote on reappointing European Commission President Jose Manuel Barroso, although he is backed by all 27 European Union governments.
New York Times Blogs – A move by the European Commission to adopt proposed regulation for hedge funds could end up igniting a transatlantic regulatory war, one of Britain’s hedge fund veterans warned in an interview with The Financial Times.
Stanley Fink, the former chief executive of Man Group dubbed the “godfather” of the British hedge fund industry, told the newspaper that tightened regulation being proposed by the commission would be “very restrictive” for non-EU funds, and could provoke retaliation by large swaths of the industry located outside the EU.
guardian.co.uk – A minister for Sweden, which took over the EU presidency on Wednesday, said hedge funds and private equity firms needed regulation but should not be viewed as a primary cause of the global financial crisis.
Speaking after a visit by the European Commission to Stockholm to mark the Nordic country’s start in the six-month presidency, Financial Markets Minister Mats Odell cautioned against "overzealous" regulation.
What was needed, he told Reuters, was well-considered, balanced regulation that helped avoid systemic risk.
"I believe there is an exaggerated view in some countries that private equity and hedge funds helped pull us into the crisis," Odell told Reuters.
Wealth Bulletin – Regulators will this week agree broad principles for clamping down further on hedge fund managers, after the European Commission proposed more draconian constraints on their activities.
At the 34th annual meeting of the International Organisation of Securities Commissions, starting today and hosted by the Israel Securities Authority and the Tel Aviv Stock Exchange, the hedge fund industry will come under the regulatory scanner. Greg Tanzer, secretary-general of Iosco, said: “Rules on hedge funds and short-selling will be finalised in Tel Aviv.
EurActiv.com – The European Commission’s draft directive on hedge fund regulation is potentially ambiguous and needs to be rewritten, an industry body said on Friday (22 May).
"The particular problem with the draft directive [...] is that it is written in such an unclear way that it is open to ambiguous interpretation," said the Alternative Investment Management Association (AIMA).
"Implementation in its current form could prove to be unworkable. It also appears to be in conflict with existing financial services directives," said AIMA, which represents more than 1,200 hedge fund firms worldwide.
Citywire.co.uk – European regulation intended to introduce some controls on hedge funds will inadvertently capture almost all investment trusts.
Draft rules released by the European Commission define ‘alternative’ funds as any non-UCITS investment fund, said the Association of Investment Companies.
Among the proposals unsuited to listed funds is a requirement to allow for the redemption of all shares and the assumption that one manager will be responsible for both asset management and administration.
BBC – In much of continental Europe, there’s a widespread belief that hedge funds and private equity firms caused the global economic crisis.
Which is presumably one reason why the European Commission wants much tighter regulation of both the hedgies and the buyout boys.
I’ve had personal experience of this, in a recent interview for French telly on how to prevent a repetition of the disaster: more-or-less all my interlocutor wanted to discuss was the alleged imperative of constraining the activities of hedge funds; there wasn’t even a nod at the reality that far more of the real culprits were in the banks, including French banks.
