European protectionism threatens local funds

A proposed Europeandirective that recommends that any alternative fund managers based outside Europe will require a 'passport' in order to facilitate and trading activities within Europe will restrict the overseas operations of Australian hedge fund managers, and maylock local operators out of European markets altogether, according to the Alternative Investment Management Association (AIMA).

The draft directive will affect any fund managers dealing in the private equity, real estate, infrastructure and hedge fund sectors.

"This unreasonable directive will make it extremely difficult and costly for non-EU funds and managers to access the EU (European Union) market. This is clearly a protectionist move," AIMA Australia chair Kim Ivey said.

"Local fund managers will face a major loss of business in the EU, particularly from London. Australian managers will be effectively locked out of the EU market for years and the consequences for Australian based managers offering alternative investment products will be significant."

For Australian managers to be able to obtain a passport for operation in Europe, regulatory equivalence in the home country would have to be established.

This would mean changes to Australian financial services licensing arrangements altered to include capital requirement measures and leverage restrictions, Ivey said.

Even if the conditions were met, a passport to operate in Europe will only be granted three years after the directive is adopted. Under the new proposed regulation European investors may also be prohibited from granting mandates to offshore managers.

"If the EU deems Australian regulations for alternative investments inadequate, Australian managers regardless of their recognised proficiency, face being locked out of the EU market until either a European office is set up or Australian regulations comply for a passport to be issued," Ivey said.

"This will make mandating an Australian based fund manager with an Australian or Asian portion of a global alternative investment portfolio from Europe virtually impossible."

- Investor Daily