17 Mar 2010
Jacqui Hatfield, Partner and Head of the Financial Services Advisory Group at Reed Smith LLP comments on the decision to delay the deal on the EU hedge funds directive:
“I am relieved that the vote has been delayed. The Directive still has issues to be ironed out. Hopefully the delay will make people focus more closely on the controversial issues.
It is interesting that the UK has effectively used a veto it does not have. It has done this I presume on the basis that the UK has a large portion of the EU funds industry. It is possible that the UK would have lost the vote, so the delay is timely.
The key controversial issues to overcome are in my view:
(i) the threshold level;
(ii) the right of third party managers to market their funds into the EU; and
(iii) the requirement to use EU depositaries.
I am surprised that it has taken so long for the US to realise the protectionist nature of the Directive. They will not be able to promote their funds to professional investors (which they can currently) unless they have similar protections. This will also affect such jurisdictions as the Cayman Islands and the BVI greatly as they are well known destinations for alternative hedge funds.
Hopefully the delay will enable them to lobby more forcefully and effectively.
I am surprised by some comments that there should be a level playing field between regulated funds and alternative funds. A key difference is that regulated funds are promoted to retail investors and therefore are and should be subject to the detailed investment and borrowing restrictions and rules relating to managers and custodians. Alternative funds are promoted to professional clients and therefore they should not require the same protections.
There has been some comment that the US may introduce a protectionist measure in response, which would not be good for the UK.
Finding a solution to ensure that EU and third party managed funds have a level playing field, however, is difficult. If third party managers are permitted to promote through their own private placement regimes, whilst the EU need to comply with the Directive, it would give the third party managers a competitive edge.”
“I am relieved that the vote has been delayed. The Directive still has issues to be ironed out. Hopefully the delay will make people focus more closely on the controversial issues.
It is interesting that the UK has effectively used a veto it does not have. It has done this I presume on the basis that the UK has a large portion of the EU funds industry. It is possible that the UK would have lost the vote, so the delay is timely.
The key controversial issues to overcome are in my view:
(i) the threshold level;
(ii) the right of third party managers to market their funds into the EU; and
(iii) the requirement to use EU depositaries.
I am surprised that it has taken so long for the US to realise the protectionist nature of the Directive. They will not be able to promote their funds to professional investors (which they can currently) unless they have similar protections. This will also affect such jurisdictions as the Cayman Islands and the BVI greatly as they are well known destinations for alternative hedge funds.
Hopefully the delay will enable them to lobby more forcefully and effectively.
I am surprised by some comments that there should be a level playing field between regulated funds and alternative funds. A key difference is that regulated funds are promoted to retail investors and therefore are and should be subject to the detailed investment and borrowing restrictions and rules relating to managers and custodians. Alternative funds are promoted to professional clients and therefore they should not require the same protections.
There has been some comment that the US may introduce a protectionist measure in response, which would not be good for the UK.
Finding a solution to ensure that EU and third party managed funds have a level playing field, however, is difficult. If third party managers are permitted to promote through their own private placement regimes, whilst the EU need to comply with the Directive, it would give the third party managers a competitive edge.”
