Brussels, 31/03/2010 (Agence Europe) - Jean-Paul Gauzès (EPP, France), who is rapporteur on the proposal for a directive on alternative investment fund managers (hedge funds, private sector equity funds), submitted a series of compromise amendments to the economic affairs and monetary committee mid-March. These amendments related to nine themes: - scope, capital requirements, depositary regime, short selling, remuneration policy, indebtedness with leverage effect, relations with third countries, private sector equity funds, and the valuation of assets. See below for the main elements. The vote in parliamentary committee has been postponed till Tuesday 27 April. The Ecofin Council mid-March did not cover this dossier (EUROPE 10099).
Jean-Paul Gauzès still hopes the future legislation will cover all professionals not managing UCITS (Undertakings for Collective Investment in Transferable Securities), already harmonised in the European Union. In his concern to apply the principle of proportionality, he tweaks this basic rule by compelling some managers to only abide by part of the provisions of the legislative proposal (e.g. authorisation, transparency, etc.), managers that take the form of regional public entities or which manage personnel participation schemes or whose failure would not endanger the financial system. Unlike what was set out in the initial proposal and the latest Spanish Presidency compromise discussed in Council, the rapporteur does not provide for minimum thresholds, expressed in amounts of assets managed, on the basis of which the rules would apply. Hedge funds managers would be under an obligation to have a minimum capital of €125,000, with additional requirements to be met if assets managed exceed €250 million. Nonetheless, according to Gauzès, the departure capital should never exceed the ceiling of €10 million. Specific provisions are introduced to prevent private equity funds acquiring corporate control to conduct asset stripping. Employees of such companies must also be informed of any commercial projects.
The manager should choose an independent depositary responsible for keeping an eye on funds collected. The rapporteur suggests that entities qualified to exercise the function of depositary should be banks or investment companies in the sense of the directive “MiFID” 2004/39/EC. If the fund is domiciled in the EU, the depositary should be located in the member state of the fund. If it is located in a third country, the depositary should be established in the EU unless several conditions are met. Such conditions include the signing of cooperation agreements between the supervisors of the member state of the manager and of the country where the fund is located, and certified equivalence of rules imposed on the non-European depositary with those in force in the EU. The depositary will be held responsible for losses incurred if it does not meet its obligations. It should provide the national supervisor all relevant information for controlling the activities of the management company. Jean-Paul Gauzès also calls for a legislative initiative on the liability of the depositary.
The rapporteur suggests rules to cover short selling. He calls on member states to ensure that fund managers own (or at least hold rights on) the financial instruments concerned at the time when they undertake this activity, and that they regularly communicate their positions to the national supervisor. Exceptionally, the future European Securities Markets Authority (ESMA), that will be created with adoption of the financial supervision package, may decide to restrict the practice of this financial technique. Used for speculative purposes, this could play a role in increasing the cost of funding the Greek sovereign debt. The rapporteur requires a crosscutting text on short selling, banning the manipulations based on this technique.
Furthermore, Jean-Paul Gauzès calls on member states to ensure that a management company fixes limits to its indebtedness with leverage effect, these limits having to take into account elements such as the kind of fund, the lenders, the market shares held, etc. National supervisors should ensure that the level of leverage remains “reasonable”, with the ESMA being empowered to act on the basis of information forwarded by national authorities if it considers that the leverage level entails a risk for financial stability. The rapporteur stands firm regarding the need to impose remuneration policies for alternative investment managers in line with those recommended for the banking sector, in line with G20 guidelines. The management remuneration policy should not therefore encourage excessive risk-taking but reflect the fund's long-term objectives.
The stumbling block in the discussions in Council and between the EP and Council relates to the matter of whether third country funds, managed or not managed by a professional undertaking domiciled in Europe, should be distributed in the EU. The rapporteur suggests there should be a transitional period of two years, during which the Commission would analyse the equivalence between rules in force in third countries where the management company and/or fund is established, and those in force in the EU. It should also ensure that cooperation and information exchange agreements, mainly in the budgetary field, are in place between third countries and the member state or states concerned. If, and only if, this assessment is positive, the fund established in a third country would benefit from the European passport which gives the fund manager the right to carry out commercial activity throughout the EU. ( M.B./transl.jl)