EU Parliament Approves Controversial Hedge Funds, Private Equity Rules

QUICK VIEW

• European Parliament committee has approved the European Union’s controversial hedge fund regulations in the form of a new bill
• European Parliament will seek to impose strict new reporting and custody rules on hedge funds and private equity funds, as well as possible leverage and borrowing limits
• The bill includes the so-called “passport” that would give foreign hedge funds that meet certain requirements access to all 27 EU countries
• Members of the British Conservative Party voted against the measure.
• Hedge funds accused of exacerbating the Greek debt crisis by betting on its default
• Private-equity firms accused by politicians in Germany of stripping the assets of the firms they bought.
• Measure could constrain European pension fund returns and bring about retaliatory measures against the EU from other countries

A key European Parliament committee has approved the European Union’s controversial hedge fund regulations, but appears to have have set up a battle with the bloc’s finance ministers at the same time.

The Economic and Monetary Affairs Committee gave its assent to the Alternative Investment Managers Directive, which would impose strict new reporting and custody rules on hedge funds and private equity funds, as well as possible leverage and borrowing limits. But the bill headed to the full Parliament includes the so-called “passport” that would give foreign hedge funds that meet certain requirements access to all 27 EU countries. That provision was not included in the version of the directive approved today by the EU’s finance ministers.

Members of the Parliament are claiming that reception of the proposed bill by the European Parliament does not appear to be free from resistance. Jean-Paul Gauzes, a french member of the Parliament claimed that negotiations will be fast-tracked, “but that doesn’t mean an accord at any price.”

Hedge funds have been accused of exacerbating the Greek debt crisis by betting on its default, while private-equity firms were accused by left-wing politicians in Germany of acting like "locusts," by stripping the assets of the firms they bought.

The committee passed the bill by a vote of 33 to 11. Notably, members of the British Conservative Party, which took power alongside the pro-European and pro-hedge fund regulation Liberal Democratic Party last week, voted against the measure.

“We’ve adopted protectionist, fortress Europe policy,” Syed Kamall, one of the Tory MEPs, said. He warned that the measure would both hurt European pension fund returns and bring about retaliatory measures against the EU from other countries, such as the US.

The move for further regulation follows a decision by European leaders at a summit in Berlin in February 2009. German Chancellor Angela Merkel, has been a strong supporter of increased oversight in the hedge fund industry.