The Great Debate UK
EU funds regulation hits the wrong target
– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –
If generals have a habit of fighting the last war, regulators are prone to fighting the war that they think they ought to have fought.
So it is in Brussels, where the European Commission last week (April 29) published a proposed directive on Alternative Investment Fund Managers (AIFMs).
Under this regime, AIFMs — chiefly hedge fund managers and private equity groups — would have to register with their home country regulator and provide extensive information on their business plans and activity, including risk controls, valuation metrics, safe-keeping arrangements and reporting systems.
BRITISH RETREAT
Under the circumstances, this was probably the least that Charlie McCreevy, the Internal Market Commissioner, could do.
The French and Germans have been agitating for hedge fund regulation for years, and the European Parliament had demanded that the Commission bring forward proposals for binding regulation.
I can hardly believe I’m reading this well: “This is a game for consenting adults. Their losses hurt no one but themselves.” Oh yes? Like the investors in CDSes and CDOs and all the alphabet soup of yesterday’s “risk free” finance? They were all consenting adults who were only going to hurt themselves, right, until taxpayers had to bail them all out. Lehman, Bear Stearns, AIGFP, all sophisticated financial players playing a zero sum game?
But what happens exactly when these adult hedge funds start losing big? Don’t they dump securities in plain vanilla markets that affect everybody to make up their losses, because these markets are more liquid? And what about all the pension funds that have been drawn into hedge funds to manage risk and target absolute returns? Is it really going to hurt no one if they lose the funds they are entrusted with?
No regulation is ever perfect. But unfettered deregulation has really worked either to say the least. The pendulum had swung too far in one direction. Now it’s swinging the other way. This is how it works. Trial and error. Not ideological absolutes.