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Alternative medicine

The Investment Management Association is the latest group to shoot down the European Commission’s proposals for regulation of the alternatives’ industry.

IMA chairman Robert Jenkins says he is frustrated that a number of European politicians believe that a banking crisis should result in additional regulation of the investment management industry and that perhaps politicians were confused by the difference between the two industries.

He says: “When the banks ran out of liquidity, our customers for whom we act as agents helped supply it. When the banks ran out of capital, the funds we manage contributed to the take-up of new debt and equity issues.

“When one day, governments divest their shares in the walking wounded of the banking world, to whom do you suppose they will sell? In short, the investment management industry is not part of the problem but we are part of the solution.”

Jenkins criticises German finance minister Peer Steinbruck for his role in drawing up the proposals. Jenkins says: “It would appear that Mr Steinbruck has forgotten that his country is part of Europe. He is no doubt painfully conscious that German industry must remain globally competitive but he seems to forget that Europe’s financial industry must compete globally as well.

“Alas, Mr Steinbruck and a number of continental comrades seem determined to shoot a key part of the money management industry in the back and themselves in the foot.”

The IMA is one of a long line of detractors voicing opposition to the proposals, which would cover all funds that do not fall under the Ucits derivative, such as hedge, commodities and private equity funds, which accounted collectively for €2tn of assets at the end of 2008.

The proposals are designed to offer an all-encompassing approach to ensure no alternative investment fund managers slip through the net in terms of regulation and oversight, with the directive applying to those managing a portfolio of more than €100m.

It also covers the regulation of all major risk sources, steps to improve transparency, permitting all AIFMs to market funds to professional investors throughout the EU, subject to compliance with regulation and allowing access to the European market to third-country funds after a transitional period of three years.

The Treasury has expressed concern at the proposals, with City min-ister Lord Myners saying they need “major surgery”.

Speaking at an Alternative Investment Management Association event in London last week, Myners said the rules would be counterproductive at both European and national level. He added that the “draft directive is flawed” and he would work be working with sympathetic governments in a bid to make changes.

Even London Mayor Boris Johnson has waded into the debate, warning that the EU could strangle the City. Johnson reiter-ated fears that the plans to make hedge funds more open could see them relocate from London, which is the current home to 80 per cent of hedge funds.

Speaking on the BBC Radio 4 Today programme last week, he said: “It is a weird thing that under the fog and confusion of war, the Commission seems to be proceeding to attack something in which London simply excels and was not responsible for the recent catastrophes.”

Intermediaries are equally sceptical of the proposals. Ruth Whitehead Associates principal Ruth Whitehead says: “The confusion with investment management and investment banking is absolutely right and it is baby and bathwater stuff.

“I do not like hedge funds and I do not like the way people operate within them but these facilities are needed and if the UK regulates itself so that this sort of investment management cannot happen here, it will happen somewhere else. It is a necessary part of capitalism.”

Martin Currie head of product development Toby Hogbin says the directive could have unforeseen consequences.

He says: “The directive contains many ambiguities and would have a consequential impact on investors that appears not to have been fully understood during the drafting process. For example, the obligation sought to be imposed on custodians would serve to reduce choice and increase cost which is likely to be detrimental to investors.

“Reduction in systemic risk and enhancement to investor protection are laudable aims and I am supportive of regulation that delivers these outcomes. The challenge faced is to ensure that any additional regulation is proportionate and is not a kneejerk reaction to the wider financial crisis of 2008.”

Philip J Milton & Company managing director Philip J Milton also believes the regulations could prove overly restrictive.

He says: “I do wonder if the authorities are trying to regulate against another Bernard Madoff scenario. But what you do not want is a regulatory regime which constrains what could be quite normal and acceptable investment management behaviour.”


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