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(SINGAPORE) A proposed new rule that the European Commission plans to slap on hedge funds will make it unduly difficult for Singapore-based managers to access the European market, the local chapter of the Alternative Investment Management Association (AIMA) has warned.
'The directive will also complicate the allocation of a global portfolio's fund management, making the delegation from Europe to Asia near impossible,' AIMA said in a statement.
Under the draft directive, managers based outside 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 a manner 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. (UCITS stands for Undertakings for Collective Investment in Transferable Securities, a set of European Union investment directives.)
Said Michael Coleman, chairman of AIMA Singapore: '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 fall.
European investors will also suffer from the higher costs passed on to them and face a diminished investment universe. This will limit managers' ability to deliver returns and diversify prudently.
The news came after the global hedge fund industry returned an average 5.2 per cent in May - the best performance in more than nine years, figures from Eureka show.
That month, the industry posted net inflows for the first time in 10 months, gaining US$1.5 billion, while total assets rose US$5 billion - a contrast with the heavy redemptions that drove some 15 per cent of hedge funds out of business earlier.
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