'Controversial new rules for hedge fund and private equity fund managers operating in Europe are moving forward after winning the backing of European Union finance ministers' as per the Financial Times. There are still significant differences in the two sets of draft regulations, but meetings are expected to take place with the intention of resolving the issues before August 2010.
The two drafts of the directive agree on the following salient points:
· All managers of alternative investment pools including private equity will have to seek government authorization and ensure regular disclosure to investors and regulators.
· Larger funds will face regulatory oversight of their total borrowing.
· Fund managers will face restrictions on how they can be paid.
· There will be new protection for investors, including heightened responsibilities for depository banks that serve as custodians for fund assets.
Key issues still to be settled are:
· The conditions under which funds and managers based outside the EU can market to professional investors within the EU
· Whether EU-based professional investors will be able to invest in funds based outside the bloc which do not comply with the new rules
· Which fund managers get a so-called 'passport' to market their products anywhere within the EU provided they meet the standards to be agreed
· Whether remuneration rules will be guidelines or more detailed constraints; also whether there will be an exemption for private equity 'carried interest'
· The extent to which key decisions are left to be resolved unilaterally by the Commission after the directive has passed
The proposal backed by the EU finance ministers would allow national authorities to retain a say over 'third countries' i.e. the funds and managers based outside the EU. This would restrict the rights of such funds/managers to market their products in the EU. The debates that follow will close the gap and finalize the new rules applicable to alternative assets.
With GCC's hedge fund and private equity industry still in its infancy, the exact implication of such rules for this region cannot be predicted. However, tighter regulations and more transparency will certainly sit well with GCC investors.
Source: Financial Times