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Money managers under the microscope

Hedge funds hit back after ESMT report

As EU countries and the European Parliament thrash out final details of the AIFM Directive on hedge funds, particularly over the treatment of foreign fund managers, two reports lend firepower to those calling for a tougher line to be taken.

In its latest Financial Stability Review, the ECB says the financial crisis showed there are problems associated with hedge funds’ business models and they can add to market stress during volatile periods.

And a report from the European School of Management and Technology raises “disturbing questions” about investors’ willingness to chase performance actively at all costs, regardless of risk.

The claim is that investors back investment styles that have done well over the past three quarters (even though the volatility of hedge fund styles means top-performers can often underperform subsequently), leading to the danger that momentum investment takes hold, pushing up the price of “overheated” securities.

Hedge funds found not guilty

Interesting research from the FSA out today, giving us the reassuring conclusion that hedge funds don’t seem to pose a systemic risk to the global financial system.

The two surveys, from October, show that funds were running a “relatively low level” of leverage relative to the assets investors have put into the funds and that risks were largely contained.

Apples, pears and Ucits

Ucits funds have undoubtedly benefited from the uncertainty surrounding the AIFM directive.

A number of hedge funds have opted to launch products in the Ucits format — automatically avoiding the directive, which focuses on non-Ucits funds — rather than wait and see how the long-running political battle plays out.

Pension funds warn of €1.5 bln regulation cost

As the debate over the EU’s controversial and highly-politicized AIFM proposals on hedge funds and private equity rumbles on, there emerges more evidence that boosts opponents of the plans.

RTR28O54An article in Global Pensions highlights a letter to the European Parliament’s Committee on Economic and Monetary Affairs from Dutch pension funds and asset managers, saying the implementation of the AIFM in its current form could cost 1.5 bln euros annually.

Morning line-up

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Hedge fund stories from the past 24 hours from Reuters and elsewhere:

rtxcg5sEU steered to strict hedge fund rules – Reuters

High fees, or no fees? – WSJ

Hedge fund bear throws in towel – FT

Hedge funds, brokers turn to poker – Sox First

New questions in Pequot case – AP

Paul Compton: How bitter a pill is the draft EU directive?

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Guest blogger Paul Compton is head of product management at SunGard Alternative Investments.

The views expressed here are the author’s own and do not constitute Reuters point of view.

Morning line-up

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Hedge fund stories from the past 24 hours from Reuters and elsewhere:

rtxcg5sWill hedgies switch to Bahrain? – Seeking Alpha

Event driven revival – FT

EU assault on hedge fund pay – Reuters

Blochet quits Brevan – Telegraph

Madoff yard sale: Baseball Jackets, coolers and fishing tackle – Reuters

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