21/04/2010
Author: Andrew Baker
Comment: Andrew Baker
It is now a year since the historic G20 summit in London that set the course for global hedge fund regulation. Within a month, the European Commission would propose its controversial Alternative
Investment Fund Managers (AIFM) Directive, and legislation would follow on Capitol Hill too.
The importance of the path set out by the G20 can be seen in the fact that both US Treasury Secretary Tim Geithner and EU Internal Market Commissioner Michel Barnier, on opposite sides of a
transatlantic dispute about the potentially protectionist consequences of the Directive, both claim to be following the G20 mandate.
So it is worth remembering just what world leaders did sign up to in London, in terms of hedge fund regulation. They agreed that all managers should be registered and authorised by their national
regulators, and that those managers should report systemic data to those regulators in the interests of financial stability. They concluded with a ringing declaration that they would not follow a
protectionist path.
Not only does Aima, as the global hedge fund industry organisation, support these laudable goals, we had actually issued an important policy statement before the summit (on 24th February 2009)
announcing our support for transparency by the industry – the reporting of systemically relevant data – and for the registration of hedge fund managers.
Had Europe’s AIFM Directive followed the G20 path of manager registration and systemic risk reporting, it is extremely likely that it would not be in the mess it currently is. Aima and the
vast majority of the industry would have had little problem with a directive that followed this path, and indeed we continue to support what could be called the G20 parts of the Directive.
Where Europe erred was in inserting a lot of additional regulation covering issues like marketing, leverage and depositaries into the Directive. It is these issues that have caused the current
woes, not least the transatlantic row.
It is also worth noting that the draft US hedge fund legislation on Capitol Hill is following an essentially G20 path of manager registration and systemic risk reporting.
As you will know, the Directive is currently stuck at an impasse. It was due to be discussed at a key meeting of European finance ministers in mid-March, but was pulled from the agenda following an
intervention by Gordon Brown. The committee of the European Parliament dealing with the legislation (the Economic and Monetary Affairs Committee) has also postponed a decision on compromise
amendments.
The reason for this is that the UK opposes what it perceives to be protectionist marketing provisions (and is supported on this by the US). The member states who support the Directive are quite
entitled to use Qualified Majority Voting to approve it, but it would break what Sharon Bowles, the British MEP who chairs the European Parliament’s Economic and Monetary Affairs Committee,
has called a “taboo” – that other member states do not push through a measure concerning an industry which is largely based in one state, against that state’s wishes.
Forcing the Directive through in this manner would also potentially create major divisions at a G20 level, given the concerns about the current draft already expressed by the US. It will be
interesting to see what emerges from the G20 Finance Ministers meeting on 22nd-23rd April in Washington DC.
There is still the opportunity for Europe to get out of this impasse by returning to the G20 principles expressed a year ago in London and passing a Directive focusing on manager registration and
systemic risk reporting in the interests of financial stability.
Doing so would allow the original supporters of the Directive to claim victory. They could claim that they had been campaigning for years for European regulation of the hedge fund and private
equity industries and that they had now achieved it. They could say that alternative investment fund managers were now required to be registered, authorised and to report systemic data to their
regulators. And this would be a sensible solution focusing on preventing future financial instability – which, after all, is the stated intention of this proposed legislation – which
the hedge fund industry would be happy to support
Volatile markets, demanding investors and the frustrating inability to shake the label of financial industry ‘bad guy’; it’s fair to say that hedge fund managers don’t have the most relaxing of jobs. Even those rare moments of downtime are flecked with work-related blackberry messages, compliance calls and the need to brainstorm with peers. 
Andrew Rubio, CEO, Throgmorton 
Opening a restaurant, patenting a ground-breaking invention, finally finishing that novel – no matter how much we may love our day jobs, there are few people that haven’t, at one time or another, yearned for something more. 
Rare is the hedge fund manager happy to blend into the crowd – when it comes to returns at least. 
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