City & Corporate: Funds' rule change victory

European Union compromises on rules after lobbying efforts.

The unlikely victory of the hedge fund industry in Brussels last week has been hailed as an example of what can be achieved if financial services firms actively engage with media and regulators.

The European Union agreed on tougher rules to govern hedge funds, but the proposed text was far less draconian than the industry had feared.

The new rules, if approved by a Parliamentary vote, would impose more transparency on the industry. But, crucially, plans to make funds obtain a separate 'passport' to operate in each European country were dropped.

'Transparency has to be a key concept for all types of investment businesses,' said Mark Knight, director of Broadgate Mainland. 'Other areas of the financial services industry that are very complex and opaque could find themselves under pressure from regulators if their businesses remain widely misunderstood.'

The collective hedge fund industry's response was co-ordinated by the Alternative Investment Management Association (AIMA), which helped turn around damning UK press coverage of the industry at the height of the crash into widespread support for the role of hedge funds and condemnation of some of the tougher EU suggestions.

Anthony Payne, partner and CEO of Peregrine, commented: 'It became clear that hedge funds did not drive the crash and were being unfairly blamed, so the pendulum had to swing back.'


The traditional defence of the industry was the value it provided to markets in terms of liquidity and price discovery, but those arguments were not working by late 2008.

We wanted to go beyond those arguments and produce hard numbers to demonstrate the economic and social value of the industry in tangible terms that people understood, such as jobs and pensions.

We sought to move the debate about regulation away from the traditional perception that the industry was unregulated and wished to stay that way, to the reality that it is already significantly regulated and actually welcomes good regulation because it reassures investors.

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