Gordon Brown, UK Prime Minister, has bought the UK hedge fund industry a few precious months after persuading European officials to suspend implementing regulation until after the UK elections.
The controversial legislation – The Alternative Investment Fund Managers directive – has been vehemently opposed by the financial industry. Although compromise has been made regarding remuneration and leverage, discord continues concerning whether fund managers outside the EU would be allowed to market to EU investors. London holds 80% of hedge funds in the EU, causing Boris Johnson, London Mayer, to state: Its utterly crazy that we should allow the EU to launch an attack on the Citys investment funds.
Brown telephoned the Elena Salgado, the Spanish Finance Minister, and stated that the UK would not support the regulation in its current form. Spain holds the current EU presidency, and was to put forward the directive to the Economic and Financial Affairs Council to be finalised, however Spain withdrew the regulation from the agenda.
Salgado said she wanted “as much consensus on this as possible and we think there is more room to manoeuvre so we can get it.”
This is very important for the UK and the City of London because there is a danger that certain sorts of fund manager business get driven offshore said Ronald Paterson, partner at international law firm Eversheds. If it becomes more difficult and more restrictive to market non-EU funds in the EU, it means that those vehicles cannot be used for raising capital in the EU. There is also a great deal of fund management business from other parts of the world that currently served from the UK, and if the consequences of the directive is that people have to go somewhere outside the EU to be managing that sort of money, then that is potentially serious for the UK.
Yet the delay instigated by Brown may not have the desired effect. There is still the possibility of a significant backlash from some of the countries who think the directive ought to be tightened up, than improved continued Paterson. So postponing the political process carries risk for the UK and London’s interest, as well as opportunities. However, that leaves you with the question whether it is better to get the directive in place, and leave it to the technocrats on CESR (Committee of European Securities Regulation) to sort out the details in a sensible technocratic way, or whether it is better to continue the political process.