Compromise on EU Hedge Fund Regulations

Despite overwhelming support for increased regulation of hedge funds in the EU, government entities have been unable to finalize a new set of rules. This week it appears, the EU Commission is tabling a possible compromise for hedge fund operating in the EU. Included in this plan are rules that would prevent foreign hedge funds from benefiting from SU passport provisions which allow the entire trading bloc to be treated as a single entity.

The Wall Street Journal is reporting today that the recent compromise proposes national governments maintain hedge fund rules for up to three years. After that three year period elapses, a sytem-wide set of rules for EU hedge funds will take precedence.

Senate Attacks Hedge Fund Tax Loopholes

This week, the US Senate considers a job and small business bill this week that may be funded by closing a tax loophole that allows hedge fund and private equity managers to pay capital gains rates on performance fees instead of ordinary income tax. By some estimats, closing this loophole could double the tax revenue generated by these hedge fund managers.

But of course, there are conflicting points of view. Len Burman, a professor at Syracuse University, describes the current taxation scheme as "a huge windfall to some of the best-off people in society." Meanwhile, those target by the bill claim they are being unfairly attacked. Because almsot a quarter of all investment partnerships involve real estate, these managerse could be hardest hit says, Jeffrey DeBoer of the Real Estate Roundtable. He adds, "What we're trying to do is make people understand this is very much a Main Street tax increase, not a Wall Street tax increase."

The bill, which likely has significant constituent support, will be voted on by the Senate this week.

EU Delays Vote on Offshore Hedge Fund Rules

On Monday, European Lawmakers chose to delay voting on new hedge fund rules that would prevent investors from investing with offshore hedge funds in tax havens. The vote will now be held May 17, 2010

Last year, The Group of 20 Nations developed the Alternative Investment Fund Managers Directive which forces hedge funds outside of the EU to comply with certain guidelines before gaining access to European investors.

According to Clifford Chance LLP's Simon Gleeson, the new rules could force hedge funds out of the UK and "to the U.S., although some to Switzerland and a few to real offshore centers."

European Union Imposes Hedge Fund Regulations

EU Imposes New Hedge Fund Regulations
The European Union is proposing new rules extending oversight for the European hedge fund industry which has close to $1 trillion in assets by some estimates. The European Commission Wednesday proposed new disclosure requirements for hedge funds and private equity firms managing more than EUR100 million in assets. Many had expected, upon release of an early draft, that the AUM cutoff for firms would be as high as EUR250 million. This cutoff means only 3% of funds (accounting for 10% of assets), will be regulated under the proposal.

Germany and France in recent years have railed against hedge funds while the U.K., home to Europe's largest financial center has taken the opposite position. Germany and France, for example, believe certain derivatives and other aspects of financial markets have evolved to become beyond regulators' understanding and oversight. The U.K. for their part, believes stricter regulations will only push hedge funds and other alternative managers to locales with less stringent requirements.

Under the plan, firms exceeding the cutoff will have to register with regulators and provide information on their holdings, fees and the amount of money they borrow to boost their potential returns.

The commission's proposal still needs approval from E.U. governments and the European Parliament. Officials expect continued argument about how to manage the sector.