Brussels, 21/04/2009 (Agence Europe) - The European Commission will present a proposal for a directive on granting authorisations to alternative fund managers on Wednesday 29 April. This legislative initiative will impose requirements in terms of minimum capital holding, supervision and disclosure of information to competent authorities and investors. It responds to a request from the G20 and the European Council that all institutions, instruments and financial markets must be appropriately supervised or monitoring. The draft text is not to the liking of the European Socialists who instigated a campaign that led to the adoption of two EP reports calling for Community rules for hedge funds and on private equity (see EUROPE 9747).
According to a draft text of which EUROPE has obtained a copy, the directive will apply to all mangers of funds not regulated by the UCITS directive: hedge, capital investment, real estate, raw materials, infrastructure and institutional funds (see EUROPE 9815). Restricting the proposal to hedge and capital investment funds would be ineffective, in the Commission's opinion, particularly since other alternative funds carry the same risks to financial stability as those that the directive is meant to detect and contain. The Commission suggests the above mentioned fund managers and not the funds themselves should be subject to authorisation, because, it says, the risks come first and foremost from the fund managers management and organisation, rather than from the fund which is seen as a shell holding the assets. In a letter sent to José Manuel Barroso on Monday 20 April, European Socialists Pervenche Berès, Poul Nyrup Rasmussen and Martin Schulz welcome the extension of the scope of the proposal but do not agree that the funds themselves should not be registered, regulated or supervised in the EU. This is a situation that would prevent non-European funds from distributing their products but would still allow them to be active in European markets.
Exempt from the directive would be managers of portfolios of less than €250 million. According to the Commission, the directive covers 15% of hedge fund managers (76% of assets of EU- domiciled hedge funds) and 36% of non-UCITS fund managers (96% of the assets invested in these funds). Such a limit would leave niche players, such as some capital venture funds, outside the regulatory scope. Socialists believe this threshold to be too high.
To operate within the EU, managers will have to be authorised by the competent authority of the country in which they wish to be established. For this, they will have to: - communicate the identity and characteristics of the funds managed and on the arrangements in place in terms of governance, asset safe-keeping and audit; - inform the competent authority about their risk management, in particular liquidity risks and those related to uncovered sales that affects depositor security. Furthermore, fund managers will have to hold at least €125,000 in own funds, plus 0.02% of the value of their portfolio above the threshold of €250 million. Once authorised, alternative fund managers will have the right to manage European- and third country-domiciled funds. They will be able to sell their services throughout the EU, on condition that they inform the host member state. Management of third country-domiciled funds has to meet three conditions: - a European assessor will value the assets; - the competent authority will have to endorse the funds' arrangements relative to asset safekeeping of non-European depositors; - the country of domiciliation of the fund will have to have signed agreements on exchange of information with member states. Only professional investors, for example, banks, pension funds, etc., will be able to acquire assets in the portfolio of an authorised manager. Funds making systematic use of indebtedness with leverage effect will have to inform the host authority of total indebtedness and the form this indebtedness takes as soon as assets held through this practice exceed €500 million. Capital investment funds will be required to publish their annual investment strategies when they acquire companies. For the Socialists, this rule should apply when control is taken of an SME. (M.B./transl.tfl)