Industry to call for €50,000 minimum EU hedge fund threshold

The hedge fund sub-group of the Expert Group on Alternative Investment Funds will make its recommendations made at the request of the European Commission (EC) in a report released tomorrow. However, some parties in the 16-strong group believed this threshold was too low, and said the EU should have limited manager regulation in line with that introduced on June 24 in the United States.

The body was set up at the recommendation of EC market and services commissioner, Charlie McCreevy, following the release of a green paper on investment funds published in July 2005. Members include ADI, Allianz, Axa-IMI, Barclays Global Investors, Citco, Citigroup-Tribeca, Deutsche Bank, Gartmore, Goldman Sachs, Lyxor, Man, Morgan Stanley, Pinoneer, PricewaterhouseCoopers, Rab Capital and Santander.

The body also included observers representing the interests of retail and institutional investors, the Alternative Investment Management Association, as well as observers appointed by the Committee of European Securities Regulators and the European Central Bank.

The industry group also struggled to form a consensus about whether or not investments in funds of hedge funds should be treated in Europe using a common set of standards. But, according to one member of the committee who spoke on condition of anonymity, the majority were against modifying the Undertakings for Collective Investment in Transferable Securities (Ucits) directive, despite countries such as Belgium, France, Germany and Spain having already implemented regulations regarding the sale of retail funds of hedge funds. The UK’s Financial Services Authority is currently reviewing the matter.

The opponents fear that some form of regulation of funds of hedge funds would open the way for the supervision of the underlying funds, or their investment managers – as took place in the US. Instead, the group will propose a set of voluntary rules that a number of parties are sceptical will work without the support of a EU directive.

There is also concern about the likelihood of the expert group’s €50,000 minimum investment threshold recommendations being enshrined into law. “McCreevy is reluctant to push for new European laws for asset management as he thinks it is very hard to implement them – the focus at the moment is on implementing what is already there,” said a party familiar with the expert group.
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