Euro. Lawmakers Warned Against New Hedge Fund Rules

Feb 25 2008 | 12:45pm ET

Alternative investment insiders and others today inveighed against new European rules targeting the sector.

At a hearing in Brussels, the European Parliament heard warnings that new, mandatory legislation would adversely affect the industry and could push hedge funds offshore.

“In the end, you should mainly aim for self-regulation,” Ronald Wujister, head of strategic research at Dutch ABP, the continent’s largest pension fund, told European lawmakers. He added that, despite hedge funds’ less-than-sterling reputation in Europe, it was riskier not to invest in the sector than to do so.

Maarten Nederlof of Deutsche Bank’s hedge fund capital group said any onerous regulation would set hedge funds fleeing the EU. In response to a suggestion that clearing over-the-counter transactions would improve transparency, he warned that it “would cost a lot,” and pointed to the failed U.S. Securities and Exchange Commission effort to force hedge fund managers to register, which he said led many to move offshore.

But lawmakers also heard dire predictions from law enforcement should the sector be left alone.

“Recent developments have resulted in an alarming increase in the number of fraudulent actions against hedge funds and private equity investments,” Carlo van Heuckelom, who heads the EU police force’s financial crime unit, warned. The Europol deputy added that existing legislation does not “fully cover the array of mischief which it comes to investing other people’s money.”

Nederlof objected to van Heuckelom’s characterization, arguing that new best practices codes do the job.

The voluntary codes “provide excellent checks and balances to minimize adverse market dynamics,” he said.

The European Association of Listed Companies, meanwhile, took aim at Europe’s deep skepticism and hostility toward activist investors.

“We need to be careful to preserve the benefit of these intermediaries and make sure the European capital market offers a favorable environment for their continued expansion,” Stefano Micossi, an EALIC board member, told lawmakers. He added that new rules were not needed, and argued that companies targeted by activist hedge funds and buyout firms improved after the intervention.

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