Myners Retort

Hedge funds have had a tough year so far but things could get far worse if the EU draft directive on alternative investment strategies gets underway. Most European based hedge funds houses' funds are offshore, with many domiciled in the Cayman islands. The directive does not permit these funds to be sold to EU investors, a development which would be massively detrimental to the hedge fund business model and could mean the closure of masses of hedge funds. With 72% of European hedge funds and fund of funds based in London it looks like the UK asset management industry has the most to lose if the directive is implemented.

But has the EU considered the effect this would have on the underlying investors? Perhaps not but City minister Lord Myners certainly has, as this week's press reports reveal. Myners has urged investors to protest again the directive – he says the directive would "reduce choice" by preventing investors from investing in alternative investment funds run by non-EU managers. More than 70% of hedge funds and 2% of private equity funds are managed outside the EU.

The National Association of Pension Finds and European Federation for Retirement Provision have supported Myners' concerns. Lindsay Tomlinson, the incoming chairman of the NAPF, said: "There have been few EU directives that look worrying, but one could understand what they were seeking to achieve and it was possible to focus on particular clauses and seek to make them work better for investors. This does not seem to be the case with the alternative investment fund managers directive, which if implemented as drafted, would have many consequences that in aggregate do not seem to benefit investors."

Myers has revealed that the UK is working on proposals to iron out "deficiencies " in the EU directive and has confirmed that the Treasury has established seven working groups comprising Treasury officials and industry experts, to retool the proposed rules.

What is clear is that a lot of work needs to be done in achieving a united consensus on this directive – watch this space.

NB