Australian hedge funds, which manage hundreds of millions of dollars on behalf of offshore investors, risk being locked out of the European Union if a new European directive is ratified, the Alternative Investment Management Association (AIMA) has warned.
The draft directive applies to all types of non-UCITS funds, including private equity, real estate, infrastructure and hedge funds, and would force fund managers and custodians domiciled outside Europe to register their businesses in the region and become subject to new rules governing investment and marketing of their products.
Regulatory equivalence between Europe and the funds manager’s home jurisdiction would need to be demonstrated in order to obtain a “passport” to trade with Europe, which would not be available until three years after the directive is introduced.
Kim Ivey, chairman of AIMA Australia, described the directive as “unreasonable” and said it would make it “extremely difficult and costly” for Australian funds and funds managers to access the EU market.
Matching the regulatory equivalence in
Australia would mean AFSL regulations would need to be changed in ways that go beyond “systemically significant” issues, and would include imposing highly prescriptive capital requirement measures and unwise leverage restrictions, he added.
“Local fund managers will face a major loss of business in the EU, particularly from
London,” Ivey said.
“Australian managers will be effectively locked out of the EU market for years and the consequences for Australian based managers offering alternative investment products will be significant.”
The UK Treasury has also voiced its opposition to the directive, with Paul Myners,
UK financial services minister urging institutional investors to join the debate.
London earlier this month, Myners said there had been “no call from end users” for these regulatory measures.
“If institutional investors can make clear which regulatory safeguards they want to see applied to their fund managers and which they find to be costly and unnecessary, this will send a powerful message to policymakers,” he said.
However Damien Hatfield, director of Hatfield Advisors, said the requirement to register was unlikely to prevent Australian hedge funds from doing business in Europe.
“You have to be registered down here and it hasn’t stopped anyone, and you have to be registered in the
UK,” he said.
“I don’t know the detail; I think there were some more draconian issues about registration of shorts and transparency, but I do believe that AIMA was arguing strongly against some of those issues.