Stricter regulation for hedge funds

Risks that managers of alternative investment funds, such as hedge or private equity funds, pose to their investors and to the stability of the whole financial system are to be monitored and supervised more rigorously. Finance ministers meeting at the Ecofin Council on 19 October struck a deal on the introduction of harmonised EU rules on the matter. The new directive would also allow the managers to provide services and to market funds throughout the European single market, subject to compliance with strict requirements.

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"Now we have a sound agreement in the Council with unanimity about the different elements to organise the protection of the consumer, to protect their investments," said Didier Reynders, Belgian Minister for Finance and President of the Ecofin Council.

Alternative investment fund managers (AIFM) are responsible for the management of a significant amount of invested assets in Europe and can exert considerable influence on markets and companies in which they invest. Their impact on the markets in which they operate is largely beneficial, but recent financial difficulties have underlined how their activities may also serve to spread risks through the entire financial system.

The new rules will set common requirements in various areas, such as leverage (use of debt to finance investments), governance standards and transparency. AIFM must regularly provide data on performance and risk management and produce a clear description of their investment policy.

For this proposal to be adopted, an agreement will have to be reached with the European Parliament. The Presidency is hopeful that EP will vote on an agreed text in November.

More information:
Press release (pdf)
Webcast of press conference