Europe vs. Hedge Funds – A Battle Looms
In what promises to be another momentous week in Europe, the FT will publish tomorrow an article sceptical about the new proposed regulations for hedge funds that sell in Europe. The distinction is important: the regulation aims toward hedge funds that sell their products in Europe, and not just those that are based in EU27.
These measures, if they pass, will become intertwined with the Franc0-German battle against tax havens, which has been in the European spotlight at least since the G20. Given the proposed rules of regulatory compliance, analysts project that management costs for off-shore hedge funds (out of Cayman, Luxembourg, or Lichenstein, for instance) will soar, making on-shore funds more efficient. Even those funds that choose to remain off-shore would have to abide by “passport” regulations if they wish to sell in Europe, which de facto means that Brussels will acquire oversight powers in terms of capital requirements, disclosure of investments, and more.
Until the legislation passes, and considering the proposed three years before it becomes binding, it is hard to say how this will impact the industry. Their conflict of interest notwithstanding, it is scary to see embattled fund managers complain so openly in the European press. The danger is an absolute loss of competitiveness for anyone residing in Europe in terms of managed funds – Europe should aim toward enough regulation to ensure security, but not to stifle investment opportunities that can actually help the continent’s economy in the long run.
The difference may seem abstract, but it is nonetheless real.
