certain level of regulatory uniformity and uniform minimum disclosure requirements will likely only help the hedge fund industry

TO BE NOTED: From Due diligence and operational risk in hedge funds:

"AIMA to EU Commission: Thanks, but no thanks on proposed directive

AIMA today announced its intention to fight the European Commission’s draft directive for Alternative Investment Fund Managers tooth and nail.

AIMA's Andrew Baker

AIMA’s CEO (Andrew Baker) stated, “There are provisions in this directive with potentially serious consequences for managers, investors, service providers and advisers internationally. As the global trade body for the industry it is right therefore that AIMA takes the lead in mobilising resources in order to secure the best possible outcome for the industry on the directive.”

There has been much furor over this directive – but what exactly is all the fuss about?

On April 30, 2009 the European Commission issued this directive with the goal of creating a comprehensive framework for hedge funds and private equity managers in the European Union. The directive also has implication for certain alternative investment service providers including administrators. This directive is essence seeks to fill a regulatory gap in the European Union by applying to hedge fund and private equity manager and administrators who are established in the EU yet are not regulated under directive 85/611/EEC undertakings for collective investment in transferable securities (UCITS) or so called AIF Managers.

Part of the criticism of this directive is its vagueness, and rightly so. As an example many critics have pointed to the “established in” language questioning what this truly means. For example, would a hedge fund manager originally founded in the US but with a satellite office in the EU be established?

The directive further establishes a number of hoops managers must go through including:

· obtaining authorization from the competent authority of their home Member Sate

· Suitability requirements

· Disclosures with regards to internal arrangements with respect to risk management, valuation, asset safekeeping and regulatory reporting

Hedge funds clearly do not like this proposed piece of legislation one bit. It is very interesting to see different reactions to hedge fund regulation in the US and abroad. In the US, hedge fund groups such as AIMA openly stated they embraced notions of additional regulation and increased transparency. Yet it seems that when regulators take them seriously and make an effort to make disclosure requirements meaningful, the hedge fund industry quickly changes its tune. To me this demonstrates the hedge fund industry’s implicit acceptance of the notion that information disclosure requirements being proposed in the US are far below meaningful levels to place a meaningful disclosure burden on hedge funds.

As an example, Florence Lombard, Executive Director of AIMA stated, “We are very concerned about the manner in which the European Commission’s directive on the industry has been drafted. It does not appear that the drafting of the Alternative Investment Fund Managers Directive has been coordinated with the relevant international institutions. The G20 mandated the Financial Stability Board and IOSCO (International Organization of Securities Commissions) to look at these issues, and it is not clear how this directive will fit in with the new international architecture established by the G20.”

Hedge funds should not necessarily bear this burden and are right to fight it, but taking such a hostile stance as the industry has taken against the EU directive does little to foster a collaborative environment where hedge fund investors, regulators and hedge funds themselves share the burden for industry regulation and setting appropriate and meaningful minimum disclosure requirements. Furthermore, global coordination (among groups like the G20, IOSCO, the SEC, the FSA and hedge fund industry groups) should be fostered as opposed to individual jurisdictions and industry lobbies each proposing their own versions of a regulatory framework.

This carving up of the regulatory globe will certainly foster an environment where different practices and disclosure requirements exist in different jurisdictions. This is not necessarily bad in and of itself, but in major hedge funds jurisdictions (UK, Hong Kong, US) a certain level of regulatory uniformity and uniform minimum disclosure requirements will likely only help the hedge fund industry and further protect its investors."