Funds Hub

Myners sets his sights on EU directive

There has been no shortage of people lining up to lambast the EU’s draft directive on hedge funds and private equity.

But today the UK’s Financial Services Secretary Lord Myners stepped up the attack, criticizing the draft rules on leverage caps and where funds can be sold and promising a blitzkrieg of lobbying.

“It is perhaps easy for other European countries to make political capital out of demanding intrusive regulation of an industry of which they have little or no direct experience,” he told a meeting organized by the Alternative Investment Management Association this morning. “But it is woefully short-sighted, bordering on a weak form of protectionism.”

Declaring that the draft required “major surgery”, Myners set out plans to “leverage natural alliances” and also to win over other countries.

“Officials will lobby in more than a dozen key capitals over the summer. I myself will be engaging directly with my opposite numbers in key member states.”

To add to the broadside, IMA chairman Robert Jenkins said regulators had got the wrong industry.

“When the banks ran out of liquidity, our customers for whom we act as agents helped supply it. When the banks ran out of capital, the funds we manage contributed to the take-up of new debt and equity issues.

…Or maybe not

Yesterday I optimistically predicted hedge funds would learn a lot more about their regulatory fate as the G20 drew to a close.

That wasn’t exactly incorrect — the industry did find out for example that regulation and oversight will be extended to “systemically important hedge funds”.

But, as with many political statements, the devil is in the detail — or in this case, the lack of it.

“The G20 communiqué is unclear as to whether their aim is to have further regulation and oversight of the funds themselves or of the managers who manage the funds,” says Robert Mellor, UK hedge fund leader at PricewaterhouseCoopers.

“The communiqué also does not make it clear what regulation means in this context. If indeed they are pointing to more regulatory capital, who would be required to have the additional capital? The hedge fund manager or the offshore fund?”

Such a lack of clarity means it’s hard to gauge whether the G20 agreement will mean a big step-change in how hedge funds behave and are monitored or a set of rules which UK hedge fund firms already partially comply with and with which U.S. firms may do soon.

The Alternative Investment Management Association immediately put out a statement pointing to research that hedge funds played only a “marginal” role in the crisis and to the Turner review, which said hedge funds generally had much less leverage than banks.

Best of British

There has been no shortage of calls from continental European leaders such as Angela Merkel and Nicolas Sarkozy for regulation of the hedge fund industry to limit potential systemic risks to the global financial system.

But it’s little surprise that some executives in London, where the vast majority of European hedge funds are actually based, have privately suggested the calls stem from motives rather more mixed than simply wanting better regulation.

These, they say, can be anything from these leaders wanting to hide their own political problems, to them feeling some ownership because many hedge fund investors are based in continental Europe, to a simple feeling jealousy of an industry that in Europe at least is mostly British.

Whatever the motives, the hedge fund industry has chosen to focus on the many benefits it believes it brings — to Britain.

In a pamphlet entitled “A British success story”, which has been sent to all members of parliament and leading civil servants, the Alternative Investment Management Association talks about how much UK hedge fund firms run, how many people in Britain it employs, and its benefits to the British pensions and savings industries.

As industry bodies such as AIMA strive to head off stringent regulation for the industry, UK managers will be watching and waiting — and wishing them ‘best of British’.

Blowin’ in the wind

The timing of the Alternative Investment Management Association’s hedge fund disclosure initiative indicates just how strong the winds of change are blowing in hedge fund land.

Coming just a day after ECB President Jean-Claude Trichet called the credit crisis “a loud and clear call” for extending hedge fund regulation, the move shows the hedge fund industry feels it must be more active in deciding the future shape of regulation.

The move, which will include regular — probably quarterly – disclosure of systemically significant holdings and risk exposure to national regulators, goes further than that suggested at last month’s Treasury Select Committee by Marshall Wace chairman and Hedge Fund Standards Board trustee Paul Marshall, who had proposed aggregating data through prime brokers.

“The international agenda is starting to gallop away… We can see which way the wind is blowing and we want to exercise leadership,” said AIMA CEO Andrew Baker, adding the proposals had been in the pipeline since early in the new year.

But AIMA’s drive to do this also serves to highlight the low number of funds that have signed up to the HFSB’s voluntary code – a fact seized upon by last month’s Treasury Select Committee.

AIMA is proposing unifying all the industry standards — AIMA, the HFSB, IOSCO, PWG and MFA — into one code. Their fear is that regulators may do this for them.