The adoption of tough European restrictions on hedge funds would provoke a transatlantic regulatory war, one of the sector’s leading figures has warned.
Stanley Fink, the former chief executive of Man Group known as the “godfather” of the British hedge fund industry, said that the European Commission’s proposed regulation would be “very restrictive” for non-EU funds and some styles of investing.
“That could, and probably would, lead to retaliatory action whereby European hedge funds will be stopped from marketing in other jurisdictions [such as the US] – and that could be very bad for the industry,” he told the Financial Times in a video interview. Asked if the restrictions could spark an international hedge fund war, he said: “I think that could be one of the unintended consequences.”
Mr Fink, now chief executive of ISAM hedge fund and co-treasurer of the UK’s opposition Conservative Party, criticised the Labour government for its failure to defend the UK financial services industry. “It is hard to imagine that legislation that harmed agriculture wouldn’t have been killed at birth by the French, and legislation that damages the car industry wouldn’t have been stopped by the Germans,” he said.
Sweden, which holds the EU’s presidency, has suggested it could dilute future rules. But in draft form, they could make it difficult for hedge funds from the US to market themselves in Europe. The commission’s plans would require hedge fund and private equity managers to register and seek government authorisation for the first time as well as meet stricter reporting, governance and risk management standards.
Gary Litman, European policy expert at the US Chamber of Commerce, warned of the dangers of “regulatory favouritism”: “It sounds like it invites trouble and is very worrying.”
Stuart Popham, senior partner at law firm Clifford Chance in London, said there was a danger of “casserole regulation with everybody putting a bit of everything in” leading to unintended consequences such as making Europe a fortress, impregnable to US funds.
Mr Fink warned the UK government against killing “the golden goose” of hedge funds and private equity. He added that taken with recent tax increases, many managers “don’t feel they’re being very loved in London at the moment, and there are other cities out there like Geneva, Zurich and other capitals that are showing much more love and care for their financial community.”
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