| Two routes to harmonised regulation of European hedge funds |
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| 04/12/2005 | |
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The European hedge fund regulatory landscape is in need of harmonisation according to the European Fund and Asset Management Organisation (EFAMA). In its latest report of the state of hedge fund regulation in EU member states, the Efama says that while a set of common features characterises hedge fund regulation in France, Germany, Ireland, Italy, Luxembourg, Spain, Sweden, and Switzerland, the issue of harmonisation will soon arise due to lasting discrepancies. The lobby group suggests two options for harmonisation. The first is a full-blown harmonisation of hedge fund products at the EU level, which could be done through the existing UCITS directive. The second would rather focus on distribution issues and specify which kind of investors can be targeted for a hedge fund investment. The Efama says that this could take place through a harmonisation of the private placement rules for the funds. Regulations All of Europe's main financial markets have some kind of hedge fund regulation in place. Spain is about to have its own regulation approved by its Parliament before the end of the year. As in the case of the 1-year old French regulation, it is expected to boost the local hedge fund industry. Experts usually say that hedge fund regulation is normally put in place to restrain a chunk of the industry rather than to fully harness all of it, which would void the hedge fund industry of its raison d'être(purpose?), which is to generate absolute returns. The Spanish regulation opens up the marketing of hedge funds to qualified investors ready to invest a minimum of €50,000, while it was previously only open to institutional investors. The net asset value of the fund will have to be published quarterly while an investment policy with details about the liquidity and diversification principles has to be put in place, answering calls for greater transparency in the sector. Nothing is said about how the assets should be managed. Most current national hedge fund regulation in Europe fall upon those lines, but the EFAMA report identifies some "inconsistencies" among the regulations, which is unlikely to foster a single market for hedge funds. "For example, a minimum level of underwriting for purchasing shares in the hedge fund is not always specified, nor is there a set maximum number of participants in the fund", report the authors of the report. Other discrepancies include the use of leverage as well as underlying funds of funds, which, says the EFAMA, are not conducive to a united market. J.L. |
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