UK suffers hedge fund blow

European Union countries led by France and Germany plan to push through controversial new hedge fund regulations next week after turning down British pleas to defer a vote in Brussels.

The refusal by Paris and Berlin to delay a decision on the new rules, which are opposed by the UK, has set up a bruising early confrontation with David Cameron’s new government.

British diplomats tried on Wednesday to persuade Paris and Berlin that Mr Cameron’s coalition needed more time to prepare for Tuesday’s meeting of EU finance ministers.

But Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, are determined to settle a new regulatory framework on hedge funds and the private equity sector, which they claim were partly to blame for the financial crash.

Elena Salgado, finance minister of Spain, which holds the rotating EU presidency, said other finance ministers would not agree to a further delay.

“We have a sufficient qualified majority,” Ms Salgado said in an interview with the Financial Times. “There is a very clear majority of countries that want to approve it. After that, there still has to be the dialogue with the [European] parliament . . . [But] our intention is to approve it.” A senior German official said: “We want this put to a vote next week.”

Britain looks certain to lose any vote and George Osborne, chancellor, could be forced to swallow plans requiring greater transparency from hedge funds and private equity groups.

The measures are opposed in the City as being excessively onerous. London is Europe’s main private equity centre and home to 80 per cent of its hedge fund industry.

The directive has also caused concern in the US. In March, Tim Geithner, US Treasury secretary, wrote to EU officials warning that, if unchanged, the new regulations could trigger a transatlantic rift by unfairly locking US funds out of European markets.

“The Americans are going absolutely ape,” said a person involved in the negotiations. “There’s this overwhelming belief now in Europe that if we legislate first, then the US will follow what we do.”

Under the new rules, hedge fund managers and private equity firms could be forced to curtail the amount of leverage they use, make regular disclosures about their portfolios and would be forced to hold their assets with European banks.

Non-EU hedge funds could face similarly exacting requirements if they wish to market themselves to EU investors. Managers and investors have said the proposed changes could force much of the industry from Europe.

The proposed directive is a poison pill left by Gordon Brown, the former prime minister, who persuaded the Spanish presidency to delay a vote until after the May 6 election.

The issue will be an early test of relations between Mr Cameron’s government and the rest of the EU.

The Conservative leader has insisted he does not want a fight with the EU in spite of his party’s eurosceptic stance, but he is regarded with suspicion by Mr Sarkozy and Ms Merkel.

Officials in Paris say that Mr Sarkozy wants to press ahead with a vote on Tuesday in a display of Franco-German co-operation. Berlin and Paris want the EU to tighten up financial market regulation and clamp down on speculators.

Mr Osborne is seeking to salvage what he can from the directive. But his spokesman said it was already “a long way down the track”.

http://www.ft.com/cms/s/0/f583a770-5ed4-11df-af86-00144feab49a.html

Bye, bye Britain. Welcome Switzerland and Asia !

 

sad, very sad. UK has so much to lose from this. It's part of retaliation from Europe on the back of the non-participation of the UK to the EUR 750bn bailout.

Europe has very little to lose from this as there must be something like 200 HFs in Europe, with the likes of CFM, Quadriga, Rivoli, Boussard and Gavaudan.

Unfortunately for Europe, instead of making their land more attractive to hedgies, they are making sure they will know establish themselves in Europe.

Sad, very sad for Europe once again. Moving the wrong direction and making sure the UK goes under.

This is politics at its worse.

 

Germany is famous for conglomerate structure where larger companies effectively own each other. These conglomerates have substantial political weight. The management sternly opposes any demands to improve efficiency from "activist shareholders", most of whom are private equity and hedge funds. I believe many German politicians believe Germany would be better off if hedge funds didn't exist.

In France there is a log history of favouring (usually) domestic shareholders over (often) foreign bondholders in any bankruptcy proceeding. (Think Eurostar.) So, I guess local politicians are allied to the cause.

The key part is hedge funds fill have to abide by the new rules if they want to market in Europe. It doesn't matter if they relocate most staff to Switzerland or Singapore.