Last week, in a letter congratulating Michel Barnier, the recently appointed European Commissioner for Internal Markets and Services, on his new role, the U.S. Treasury Secretary, Timothy Geithner, reemphasized the importance of member states of the G-20 adhering to their common commitment to “avoid discrimination and maintain a level playing field.” Mr. Geithner specifically raised this issue in regard to proposals that have been promulgated by the European Union to further regulate the alternative investment fund management industry. Most notably, the proposed EU Directive on Alternative Investment Fund Managers (EU Directive) has caused significant concern within the alternative fund community.
The EU Directive, as proposed, seeks to impose regulation and oversight of those alternative investment fund managers (AIFM), and all associated key service providers such managers use, who have assets under management of more than €100 million (this threshold increases to €500 million in the event the AIFM does not employ leverage). This regulation would include registration, ongoing compliance oversight, limitations on the use of leverage, increased transparency and the imposition of strict governance standards of the AIFMs that fall within this category. However, many within the alternative investment fund industry feel that such oversight and limitation on the use of leverage would reduce many of the intrinsic value propositions that differentiate these products from their regulated counterparts, UCITs (Undertakings for Collective Investments in Transferable Securities). Furthermore, and specifically to Mr. Geithner’s point in his letter, the EU Directive would also drastically curtail cross-border interactions with non-EU member states, i.e., it would severely curtail the ability of EU-based AIFM to market their products to non-EU based personnel and, conversely, the ability of non-EU based AIFM to market their products to EU citizens, and potentially will also close off the ability for non-EU based AIFMs, most notably private equity and venture capital managers, from providing capital solutions to EU-based companies.