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EU Council adopts hedge fund rules

Monday, May 30, 2011
Opalesque Industry Update - The Council of the European Union adopted the Alternative Investment Fund Managers (AIFM) Directive on Friday 27th May, according to a press release issued that day. The adoption of the text follows an agreement already reached with the European Parliament.

Indeed, in November 2010, the European Parliament adopted by 513 votes to 92, with 3 abstentions, a legislative resolution of the proposal for a directive of the European Parliament and of the Council on the AIFM and amending Directives.

This concerns hedge, private equity, real estate, commodity funds “all other funds that are not covered by the directive on collective investment funds.”

The directive is aimed at establishing EU rules for monitoring and supervising the risks posed by alternative funds, whilst allowing fund managers to market their funds, subject to compliance with strict requirements. It was originally proposed by the European Commission in April 2009 as part of the EU’s response to the financial crisis.

The directive will enter into force on the 20th day following its publication in the Official Journal; member states will have two years to transpose its provisions into national law.

The main features of the directive are: authorisation for fund managers to operate; requirement to appoint an independent depositary; to apply risk management and prudential oversight; to provide a clear description of investment policies to investors; to limit leverage according to authorities’ requirements; to disclose information to shareholders when acquiring controlling stakes in companies; to use a passport to market funds throughout the EU.

Following a two-year transition period, the passport will be extended to the marketing of non-EU funds, managed either by EU AIFM or by AIFM based outside the EU. In accordance with the principle of "same rights, same obligations", this approach will ensure a level playing field, explains the European Council statement.

Furthermore, the directive gives member states the option not to apply the directive to smaller AIFM (funds managing less that Eur100m if they use leverage, and or less than Eur500m if they do not.)

The need for regulation and oversight of hedge funds is also being discussed within the G-20, the International Organisation of Securities Commissions and the Financial Stability Board.
B. Gravrand

See last year’s related article:
Opalesque Exclusive: AIFMD expected to start affecting hedge funds in 2015 Source

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