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AIMA Singapore: Draft European Directive could significantly impact growth of Singapore’s alternative investment fund management industry

Monday, July 27, 2009
Opalesque Industry Updates - The Singapore Branch of the Alternative Investment Management Association (“AIMA”), the industry trade association for hedge funds, warns that the European Commission’s draft directive on Alternative Investment Fund Managers will make it unduly difficult for Singapore based alternative investment managers to access the European market. The directive will also complicate the allocation of a global portfolio’s fund management, making the delegation from Europe to Asia near impossible.

Under the directive, managers based outside of Europe will need to obtain a special marketing passport before being granted access to the European market. However, the passport will not be available for three years after the introduction of the directive. Significant obstacles to acquiring the passport will also be imposed; regulatory equivalence between Europe and the applicant’s home jurisdiction will need to be established, key criteria include comparable prudential legislation, equal access to markets, and a tax information-sharing agreement. Capital requirements and leverage restrictions will also need to be implemented. Local regulations will need to be effectively adjusted in manners outside current discussion in international regulatory forums.

The proposed directive will apply to all types of “non-UCITS funds”, including private equity, real estate, infrastructure, and hedge funds.

Michael Coleman, the Chairman of the Singapore branch of AIMA, commented: “The effect, if not the intent, of this directive is highly protectionist. If it is left unchanged it will have a major negative impact on the hedge fund industry in Singapore, which has a large European component to its investor base. Also, it will have negative consequences for European investors who will find their choice of investment opportunities severely restricted. ”

This will have an adverse impact on Singaporean investors with European funds or managers. Due to the restrictions imposed, compliance costs will increase and returns will lessen. European investors will also suffer from the higher costs passed on to them and face a diminished investment universe. This will limit managers’ abilities to deliver returns and prudently diversify. Concern over the directive has been expressed by policy makers in Europe, including Paul Myners, the UK Financial Services Secretary to the Treasury, Mats Odell, Swedish Financial Markets Minister, and Jacques de Larosiere, Chairman, High Level Group on Financial Supervision in the EU.

AIMA is engaged with policy makers and regulators in Singapore and around the world and is supportive of fair and effective regulation. AIMA's new policy platform, published in February, includes support for the principle of transparency (disclosure by large hedge fund managers of their systemically significant positions to national regulators) and global authorisation and registration of hedge fund managers.

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About AIMA
As the only truly representative global hedge fund association, AIMA, the Alternative Investment Management Association, has more than 1,100 corporate members worldwide, based in 40 countries.

AIMA Singapore has 52 corporate members and actively serves as a unified voice for the local industry, working closely with regulators and interested parties in order to promote the responsible use of alternative investment instruments. The branch was formed to support the strong growth in the alternative investment industry in Singapore

Members include leading hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms and fund administrators. They all benefit from AIMA’s active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators worldwide.

AIMA is a dynamic organisation that reflects its members’ interests and provides them with a vibrant global network. AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists. For further information, please visit AIMA’s website, www.aima.org.

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