Anglo-Saxon finance has been under attack over the past months and the regulatory efforts to curb the alternative investment market, which some fear could result in the decimation of European hedge funds, have been infuriating the industry since a draft directive on alternative investment fund managers was first presented in April. Sentiments are now so heated that, privately, the tensions between the European Commission and the industry are being described as a 'war'. Hedge funds, private equity firms and other alternative investment fund managers, are not alone. UK and Dutch institutional investor groups have also raised their concerns in a letter in June to EU internal market commissioner Charlie McCreevy. Protectionist accusations Speaking at a seminar last month hosted by JPMorgan on behalf of Business New Europe, Sir James Sassoon, advisor to the UK's Conservative Party on financial regulation and formerly an advisor to the UK treasury, said that because the draft directive had been rushed through, it was "poorly drafted" and "protectionist in effect if not in intention". The UK's City minister, Lord Myners, who was in the audience for the seminar, agreed with Mr Sassoon that the directive is flawed as it stands, including its "brutal and blunt" suggestion of leverage limits for hedge funds. He stressed, however, that the directive is only in draft form and that he is confident that the various parties currently working together could establish a more workable and equitable version. Jacques de Larosière, chairman High Level Group on Financial Supervision in the EU, who was also speaking on the panel alongside the chairman of the UK's Financial Services Authority, Lord Turner, agreed with Lord Myners that the there is still a "lot of work to be done" on the draft directive. He stressed that private equity - also targeted in the draft directive - was not even mentioned in the report released by the High Level Group in February. "[Regarding] hedge funds, I have some doubts on the wisdom of some aspects of this proposal," said Mr de Larosière. The draft directive on alternative investment fund managers prohibits non-European funds, not harmonised under retail fund legislation, to be marketed and sold to European institutional investors, unless they come from a jurisdiction that has integrated key Organisation for Economic Co-operation and Development's (OECD's) requirements on taxation into their home regulation. Lord Turner's and Mr de Larosière's reviews of the financial markets, along with the International Organisation for Securities Commissions (IOSCO), have all come to the conclusion that the financial crisis was not a hedge fund crisis. Which, for many observers, begs the question: why has the European Commission put together a document that seemingly wants to control systemic risk by curbing the alternative investment industry, and offers protection to institutional investors perfectly capable of carrying out their own due diligence?
Political ignorance
