Monday, January 17, 2011

Global Hedge Fund Association Comments on Implementing EU Hedge Fund Legislation

A global hedge fund association has called for the national implementation of the EU hedge fund adviser legislation to be flexible and proportionate and based on the principles of openness and transparency. The Alternative Investment Fund Managers Directive was passed by the European Parliament last year. The Alternative Investment Management Association (AIMA) comments were a consultation response sent to the new European Securities and Markets Authority (ESMA). The authority released a Call for Evidence ahead of the rule-making Level 2 of the legislative process. The industry was asked to respond in January to the main issues raised in the Directive and AIMA immediately established a working group of member firms to study the proposals and contribute to the response.

AIMA welcomed the opportunity to engage constructively in legislative implementation and are happy that ESMA is taking stakeholder consultation extremely seriously. AIMA commended the ``high level of their professionalism in this complicated process with tight deadlines,” said Jiri Krol, AIMA’s Director of Policy and Government Affairs.

AIMA also said it hoped that ESMA would implement the Directive in such a way as to take account of one of the most striking features of the hedge fund sector, which is its great diversity. AIMA believes that flexibility, proportionality and openness are three key features which the regulation should retain if it is to succeed in delivering the policy objectives while preserving the existing breadth of business models and strategies. AIMA pointed out that, while some of the larger hedge fund firms may employ several hundred staff and manage over $10 billion, the majority are smaller businesses, with much fewer staff and managing assets of less than $1 billion in many cases.

Late last year the European Parliament has approved legislation regulating hedge funds and private equity funds. The legislation sets up a new regulatory regime designed to bring transparency and regulation in the way these funds are managed and operated. European Commissioner for the Internal Market Michel Barnier hailed the Directive for increasing transparency, reinforcing investor protection and strengthening the internal market in a responsible and non-discriminatory manner.

The legislation makes full use of the opportunities afforded by the new European securities and markets authorities to strengthen supervision and to enhance the macro-prudential oversight of hedge and private equity funds. The term alternative investment fund encompasses a wide range of investment funds that are not already regulated at a European level by the UCITS Directive, including hedge funds, private equity funds, real estate funds and a wide range of other types of institutional funds.

The all-encompassing approach of the European Commission’s draft proposal has been retained in the final legislation, covering all the major types of alternative investment fund managers and alternative investment funds. the ``control tower and the radar screens’’ needed to identify risks, he said, and the tools to better control financial players, as well as the means to act quickly in a coordinated and timely fashion.

With the advent of 2011, a new EU regulatory framework for securities and banking has been born, including a European Systemic Risk Board similar to the Financial Stability Oversight Council created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. EU Commissioner for the Internal Market Michel Barnier said that the new regime will give the EU monitoring tools to detect risk which is accumulating across the financial system and provide effective tools to act. The new framework gives the EU the ``control tower and the radar screens’’ needed to identify risks, he said, and the tools to better control financial players, as well as the means to act quickly in a coordinated and timely fashion. The European Securities and Markets Authority will replace CESR and the European Banking Authority will replace CEBS.