On 28 April 2010, Wolfgang Schauble and Christine Lagarde, the finance ministers of Germany and France respectively, published an article in the Wall Street Journal as an indirect response to letters received from US Treasury Secretary Timothy Geithner. In his most recent letter, Secretary Geithner expressed his desire that in further considering the draft AIFM Directive, the European Commission consider "our shared commitment to create regulatory reform that does not discriminate against foreign firms and maintains a level playing field." In the communiqué following the meeting of G20 Finance Ministers and Central Bank Governors on 23 April, the G20 reaffirmed its commitment last week to the “consistent and coordinated oversight of hedge funds.”
In his letter, Secretary Geithner says that he hopes that the draft directive be revised to allow non-EU funds, fund managers and global custodians the same access to the EU single market, noting particularly that proposed US reforms would “treat all advisors and funds operating in the U.S. equally regardless of their origin-domestic or non-U.S."
The article by Messrs Schauble and Lagarde retorts that the AIFM Directive is consistent with the G20 objectives agreed to at the London summit a year ago, arguing that the draft Directive provides that supervisors have access to all relevant information regarding individual hedge funds, have the necessary powers to take action when needed and have the ability limit excessive leverage in order to prevent financial disruptions.
More interesting is their stance on protectionism, with what appears to be a major concession on existing national private placement regimes being allowed to remain. Schauble and Lagarde stress the advantages of the new passport that would enable European hedge funds to be actively marketed to qualified investors throughout the EU, “provided we ensure that funds that benefit from the newly created passport align with the highest standards in terms of investor protection”. Schauble and Lagarde stress that they do not want to limit the choice of European investors and that “qualified investors should be free to invest in funds from all around the globe irrespective of quality standards set for state-of-the-art European hedge funds.” Whilst this does not appear to be a concession that non-EU domiciled funds may have access to the passport, it does appear that France and Germany will concede that it will be “up to each member state to decide whether to allow the active marketing of off-shore funds to their national investors.”
Nevertheless, the likelihood of France and Germany opening up private placement to non-EU domiciled funds remains slim, with their foreign ministers noting that “the “domicile” of the fund impacts on many issues, ranging from the governing law and competent court; to the capacity to obtain the enforcement of a judgement; to the professional requirements and financial liability of auditors; to valuation rules.”
Schauble and Lagarde do not comment on Secretary Geithners concerns over delegation to non-EU managers and custodians. Moreover, many provisions of the draft Directive remain inconsistent with their comments and it remains to be seen whether France and Germany support the appropriate amendments that would be in line with their statements.