The Spanish EU Presidency is saying it has resolved all but one issue on a draft directive on alternative investment fund managers ahead of a meeting of EU ambassadors (Coreper), on 11 March. A controversial clause on non-EU fund managers - deemed protectionist by the UK and hedge fund lobbies - continues to plague negotiators, but in an issues note Spain hails “increasing convergence” on a final compromise text to be passed to finance ministers, on 16 March.

The talks are based on a European Commission proposal, published last April ⁽¹⁾, to regulate all managers holding hedge funds worth more than €100 million and private equity above €500 million. The row in Council is now whether non-EU fund managers should be able to offer their funds to investors in one of the 27 member states. Spain, in February, reintroduced a controversial clause (Article 35) - which had been erased by the Swedes - allowing foreign managers access to EU investors only if “appropriate cooperation arrangements” were in place between the countries concerned.

But the Alternative Investment Management Association (AIMA), representing the global hedge fund industry, says the move is protectionist. “Stipulating that these cooperation arrangements must be in place sounds reasonable enough but we are worried that they would be difficult to establish and to comply with. The practical consequence would be that the EU market would be closed to non-EU funds and managers,” AIMA CEO Andrew Baker said recently.

It is still unclear if the UK will be able to obtain enough support to throw out the paragraph. It has the support of the Czech Republic against limiting the EU market to foreign managers, while Ireland, Sweden and Finland have concerns over whether the cooperation agreements will cause confusion among regulators. However, Germany, France and Italy support more transparency for investors, the Spanish say.

The Presidency appears to have abandoned attempts to reconcile member states on the issue of depositaries - which hold assets for safekeeping - ahead of the finance ministers’ meeting. France in particular is against allowing depositaries to shift to sub-custodians the responsibility for repaying investors in the case of a loss - although sources say it was isolated on this point - while member states were split over what kind of firm could qualify as a depositary. The Presidency says in its note, “As the views of delegations go to opposite directions in these issues, the Presidency finds that the current compromise text - with possibly some minor redrafting before Coreper - provides best way forward for an overall compromise”.

Finance ministers are expected to hammer out a general approach, on 16 March, allowing them to start talks with the European Parliament after the Committee on Economic Affairs (ECON) votes on French Conservative MEP Jean-Paul Gauzès’s report, on 12 April.

⁽¹⁾ COM(2009)207