The Alternative Investment Management Association ("AIMA") has voiced strong opposition to the EU directive that would regulate private funds, arguing that the directive would make it difficult for non-EU-based managers to raise money in Europe and limit European investors' fund choices. The US has also recently entered the debate by quietly lobbying Europe to change the terms of the proposed directive.

As drafted, the EU directive would apply to investment fund managers with assets under management above a threshold of €100 million or, in the case of managers of funds with no leverage and a lock-in period of five years or more, above €500 million. It would, among other things, place limits on how much debt funds can take on, require them to hold capital to cover potential losses and redemptions, place strict disclosure requirements on private-equity portfolios and require fund managers based outside the EU to obtain a special "passport" before marketing to investors in the EU. The marketing passport would be granted only to managers in countries outside of the EU with regulatory, supervisory and market access frameworks that are equivalent to the EU and have tax information sharing agreements with the EU. However, the new head of the European parliament's economic and monetary affairs committee told the Financial Times that the draft regulations for private funds will be substantially amended.

AIMA estimates that the directive could cost Europe's pension fund industry up to €25 billion a year if implemented in its current form. AIMA has warned that citizens of Europe would feel the negative effects of the EU's draft directive because European pension funds have been increasing their allocations to alternatives over recent years. If these alternative investments suffer lower returns as a result of the directive, current and future European pensioners would be negatively affected. In addition, AIMA representatives in Asia have argued that the directive would make it difficult for Singapore-based and Hong Kong-based investment managers to raise capital in Europe. Meanwhile, some in the European legal community have complained that AIMA's attempts to lobby against the EU directive are unstructured and will fail.

US Treasury officials have been talking with both their counterparts in European governments and European Commission officials in Brussels, and are also pushing their agenda in international forums such as the G7 meetings. The directive would effectively apply to funds and financial firms based in the US that want to raise cash or provide services in Europe, and goes much further than the US's recent proposals regarding private fund regulation.

The EU directive is currently being discussed in a series of working groups, with the goal of having a version ready before the G20 meeting in Pittsburgh on September 24 – 25; we will continue to monitor its progress and related developments.

EU Directive: available here (PDF)

Press Release: European Directive Could Cost European Pension Industry 25 Billion Euros Annually, AIMA (August 4, 2009) (HTML)

Related Story: AIMA Singapore: Draft European Directive Could Significantly Impact Growth of Singapore's Alternative Investment Fund Management Industry, Opalesque Industry Updates (July 27, 2009) (HTML)

Related Story: US Enters Europe's Fund Debate, Wall Street Journal (July 27, 2009) (HTML)