As the United States makes moves to loosen the governmental bonds on the hedge fund industry, Europe is actually looking to tighten the reins. Various moves that governments are making throughout the continent could actually give funds in Europe a decided edge over foreign companies who are trying to create a foothold there.
The Alternative Investment Fund Managers Directive is at the center of the new regulation changes. This directive was created so that a single market could be formed for hedge funds for the protection of investors. A single market would increase transparency and improve the management of risk throughout the hedge fund industry.
Hedge Fund Marketing Under the Alternative Investment Fund Managers Directive
Under the new directive, foreign hedge funds were forced to get a license in order to sell securities across Europe. However, the grace period that hedge funds were given by governments to get this license runs out in July. As of the present, hedge funds is spend more time fighting though new regulations than submitting to them. Few hedge funds have signed up for the license, preferring to challenge the interpretation of the directive to the court system.
European hedge funds gave much less of a fight against the new directives because they did not have as much of a choice.
Although the foreign hedge funds who had chosen not to apply for the license or comply with regulations numbered more than two thirds of the total funds in Europe, they did not seem to believe that this would have a real impact on business. Either they do not believe that European governments will be able to withstand the loss of business or they simply do not believe that Europe is as important on the market as it deems itself. Only a third of the funds that were approached by a surveying company said that they were compliant with the new European regulations. It stands to note that the funds that were surveyed were in control of more than $300 billion.
Hedge Fund Marketing without a European License
Perhaps the reason that foreign hedge funds are not taking the directive seriously is because there are so many loopholes around it. All that is necessary for foreign hedge funds to do business inside of Europe is to adhere to certain “private placement rules” when it comes to approaching an investor.
This means that the directive is really only affecting smaller hedge funds that are located in the region. The only reason that these companies would invest in a license is because it is the most cost-effective option, not because there is actually any business penalty that would be incurred.
In actuality, many hedge fund marketing efforts are being stopped because of uncertainty about the directive. Although many foreign hedge funds have around 1/5 of their assets in Europe, they are simply refusing to increase their holdings there. They believe that waiting out regulations will turn the tide in their favor when it comes to actually complying with new licensing regulations.
Will the new hedge fund marketing rules actually affect European trade in the way that governments think it will?
This remains to be seen; however, hedge fund marketing at present has not changed a great deal even with the recent announcement that 2018 will bring down severe penalties on all hedge funds attempting to do business inside of the European Union without a proper license. It seems that the industry at large believes that they have the money and the clout to wait out the European Union, and this is exactly what they are planning to do.