The reign in Spain

When, last December, Sweden confirmed a stalemate within the EU Council, some hedge fund lobbyists feared the worst. The then-Council president’s admission of defeat, that it would be unable to agree with member states a compromise version of the Alternative Investment Fund Managers (AIFM) Directive before its six-month tenure ended on 31 December, meant negotiations would continue into Spain’s term as president.

The basis for said fear was simple. Spain, with its re-elected socialist government, was expected to be less appreciative of the alternative funds industry than the chair’s previous incumbent, Sweden. If the Council’s draft of the Directive could not be finalised during the Swedish tenure, then, the argument went, what headway the hedge fund industry had made would likely be undone – the document, fretted lobbyists, would be toughened.

It’s now been one month since the handover and Spain is firmly in the driving seat. Teams have been established, the presidential programme has been published, and meetings – both public and behind-the-scenes – have taken place. Are initial fears proving founded? Not according to Andrew Baker, chief executive of the Alternative Investment Management Association (Aima).

One of the first industry representatives to report back from a Spanish rendezvous, Baker met Spain’s AIFM team – headed up by economist Dolores Duran – in Madrid in December, before departing for Brussels to meet with Spain’s EU permanent representative, Carlos Bastarreche Sagues.

“All in all it was very reassuring,” Baker told HFMWeek at the beginning of the year. “I don’t think they [the Spanish team] have any desire to revisit the work that Sweden has already done. They want to build on the work already put in place.”

Though Sweden was ultimately unable to thrash out a deal, significant progress – much of which has been praised by industry sympathisers – was made during their three drafts. In its AIFM sign-off note to Council in December, the Swedish team estimated that 80% of work on the Directive had been achieved, with four areas – depositories, third-county areas, valuation and remuneration – remaining problematic.

Spain produced its first AIFM-focused note in the second week of January. “The Swedish Presidency has done a remarkable job conducting the debate on the proposed Directive to reach a compromise text,” it began, backing Baker’s claim, that current progress will not be retracted. The note goes on to address what Spain considers the seven topics that require further discussion – suggesting a firm grasp of both progress made and the task at hand.
In fact, for some AIFM lobbyists, the very existence of this note, regardless of its complimentary tone, is heartening. “The feeling in Brussels a couple of months ago was that the Spanish presidency wouldn’t really have the AIFM as a priority,” explains one Brussels-based source. “But having seen the presidential programme and some statements from ministers, it seems this isn’t the case – it’s always mentioned. It’s not a first priority, but it is a priority.”

The presidential programme – Spain’s four-point list of priorities – specifically mentions both the “regulation of alternative investment fund managers” and “hedge funds” as part of its second focus on Economic Recovery and Job Creation. As well as AIFM-focused documents, there have also been two meetings of the Council's AIFM working group, on 14 and 15 of January, and the publication of a list of Ecofin (Economic and Financial Affairs) Council meetings.

Back in early January, Aima’s Baker suggested that the number of AIFM-related meetings scheduled would provide a good indication of the significance Spain attributes to the Directive.

Peter Skinner, a British MEP with Parliament’s Economics and Monetary Affairs (Econ) committee – the chamber overseeing the second half of the EU’s twin-track legislative procedure – agrees with Baker’s initial assessment. “The decisions that were taken under the Swedish Presidency will be followed through by the Spanish – Spain won’t hold a political view on this,” he says.

“It’s helpful to have the Spanish presidency start to focus on this,” Skinner adds. “Although clearly there will be different ideas because their experience is slightly nuanced. That said, they are, like the Swedes, significant players themselves, in a smaller way, in Europe’s financial services, so they’re not bystanders.”

Though, as Skinner suggests, not a financial services heavyweight along the lines of France, Germany or the UK, Spain remains a major European player. According to data provider Bankers Almanac, as of January 2009, Spain had two entries in Europe’s top 25 banks by assets – Banco Santander at 9 (world ranking of 11) and Banco Bilbao Vizcaya Argentaria at 23 (world ranking of 31). Sweden, by comparison, had none.

Spain is also considered to be one of the first European states to introduce retail investors to hedge funds. In 2005, the ‘Summer Law’ was passed in Spain, with Spain's market regulator, CNMV, approving the final rules surrounding the sale and marketing of hedge fund products at the end of 2006. The entire universe of Ucits-compliant hedge funds is now offered there.

As such, Skinner rejects the automatic assumption that Spain’s socialist leanings mean the Directive is in for a rough ride. “Not necessarily. For example, they may indeed be aware, far more fundamentally because of their banking structure, of the way in which to supervise large structures and large amounts of money,” he explains. “It may be that they’ll have a degree of independence in their regulatory feeling for this rather than at a political level.”

A second important factor, as Skinner points out, is Spain’s size. With the fifth largest population in the EU (45.6 million), Spain’s voting weight sits in the Council’s second-highest tier (27 votes from a total of 345). Sweden, by comparison, is in the sixth tier (ten votes). “It is a bigger country; therefore it can bring greater pressure to bear to get compromises. Although that depends on which side of the compromise you are, of course,” Skinner admits.

“Much will depend on the direction Parliament decides to take,” adds HFMWeek’s Brussels source. “If Parliament agrees on some controversial issues then it will be easier for the presidency to push for an agreement in Council. But some member states could object heavily to certain issues that could stall negotiations.”

A widely circulated rumour has France – one of the main proponents of a stricter AIFM text – as the main obstacle to a compromise during the last presidency. France, it has been suggested, sought to stall negotiations not only until Spain’s tenure began, but until French diplomat Pierre de Boissieu had bedded into his role as the Council’s secretary-general (as of 1 December 2009).

An AIFM update from industry consultants Laven Partners earlier this month alluded to the above suggestion. “There have even been rumours that the Spanish have allied with the French, trying to combine continental efforts in a battle to contain London’s power as the major financial centre in Europe,” its statement read.

According to certain HFMWeek sources, however, the deal described is not as alarming as Laven would suggest. Said deal – which the sources agree is in fact in discussion – is expected to be inclusive of the UK, with concessions and compromise on the table.

Though not guaranteed, the likelihood is that a final version of the AIFM Directive will go to a vote in plenary just after, if not during, Spain’s tenure as Council president. That may still be a potential five months down the line, but the more pessimistic lobbyists could be forgiven for breathing a quiet sigh of relief. Spain has, at the very least, played an active role in keeping the AIFM ball in motion – a scenario some feared would take far longer to materialise