A European Commission draft proposal to strengthen regulations on alternative investment managers would hurt competition, restrict investor choice and put many hedge funds out of business, according to a report commissioned by the European Parliament's Committee on Economic and Monetary Affairs.
The committee, known as ECON, is one of two legislative groups working on the next draft of any possible new regulations.
“We consider this (proposal) in its current form poorly constructed, ill-focused and premature,” according to the report, which was written by independent consultant Europe Economics and Maurizio Conti, a professor at the University of Genoa.
In the report, made public today and titled, “Quick Impact Assessment on a Directive Concerning Alternative Investment Fund Managers and Amending Directives,” the authors wrote that the proposed changes to regulations would increase compliance costs “to a much greater degree” than the EC has acknowledged, will impair competition (especially from outside the EU), and that leverage thresholds “are set so low that many hedge funds will cease business.”
The authors also found that the EC's “analysis of the policy problem (was) vague, sweeping and inadequate as a basis for justifying regulation. They proposed basing regulations on issues of market failure and regulatory failure.
In an interview, Andrew Lilico, lead author and principal at Europe Economics, said that in a few weeks the firm will submit a second report for ECON that will deliver further recommendations on improving the proposal. The original proposal was introduced in April 2009.