LONDON (HedgeWorld)–A new PricewaterhouseCoopers LLP publication contends that the European hedge fund industry and national regulators can both learn lessons from American experiences.
A key characteristic of the industry in the United States, the report contends, is “that the regulatory rules for hedge fund managers are clearly set out [by regulatory agencies], and managers can operate their businesses within a flexible framework.”
That same happy combination of predictability and flexibility is also present “to a lesser extent” in the United Kingdom but absent from the European continent.
Released in May, the report, which was prepared under the direction of Graham P. Phillips of PwC’s London office, urges fund managers in Europe to take an active part in reforming the regulatory framework.
Some movement to provide a hedge fund friendly environment competitive with that in the United States is underway. For example, in France the Commission des Op?rations de Bourse issued a “statement of position” in April 2003, which it expects to implement later this year with moves toward the retail availability of hedge fund investments. The German Previous HedgeWorld Story analog, the Federal Financial Supervisory Authority, issued two consultative questionnaires early this year and expects to publish proposed new rules for discussion later this year. The Isle of Man is working on changes to its Partnership Act that will help attract funds established as limited partnerships. Various non-domestic hedge funds recently have been authorized for distribution in the Netherlands. The Swiss are writing a revision of the regulatory system for the whole investment funds industry.
“The industry should not leave the regulators to make these changes in isolation,” the report says, “Influence and dialogue with the European regulators is vital. …The challenge is to develop a model that is competitive with the U.S.”
The report also observes that almost 70% of European single-manager hedge funds are managed from London although the funds are domiciled elsewhere. London’s dominance in hedge fund management is due in part to its relatively light regulatory regime. But given the ongoing transformation of regulatory regimes throughout Europe, PwC expects that eventually London will lose this dominant position as “Paris, Frankfurt, Stockholm, Milan” all acquire “critical mass.”