MEPs in the Economic and Monetary Affairs Committee (ECON) have hit out at the European Commission’s draft directive on hedge funds proposed in April, saying it could stymie venture capital in the EU. In a second round of talks, on 6 October, on the Directive on alternative investment fund managers (AIFM, COM(2009)207), the MEPs questioned the very basis of the draft, saying they needed to look at its definitions and scope.

The directive suggests that all hedge fund managers with a portfolio of €100,000 or more and all private equity funds worth over €500,000 should be forced to register in their home member state. Approved managers would then get a ‘passport’ to market their funds across the 27-member bloc, and would have to adhere to minimum capital requirements, leverage limits and divulge information to national authorities (see Europolitics3744).

But the deputies in the 48-member committee are worried that there is no clear definition of which entities fall within the directive’s scope.

The Commission defines alternative investment funds as any investment not covered by the existing UCITS (Undertakings for Collective Investment in Transferable Securities) Directive (85/611/EEC).

But ECON MEPs say that this is not clear enough, highlighting in particular that it could have “unintended consequences” for venture capital and high-tech companies.

“One size doesn’t fit all,” said Peter Skinner (S&D, UK) during the debate. “The scope is very broad. I wonder whether we could be injuring things, such as the Lisbon agenda, in terms of venture capital.”

Member states are also worried on this point, according to a Council issues note, which recommends looking at exemptions for certain self-managed funds, banks and insurance companies (which manage funds on their own account or for third parties), and state pension systems that use funds to generate income, for example.

But Commission officials have said that it would be impossible to define every type of company that could come under the rules.

The MEPs are also suggesting a thorough examination of the €100,000 and €500,000 thresholds (de minimis). Many portfolio values fluctuate above and below the Commission’s threshold, and the Council wants to clarify what to do in this case or remove the thresholds altogether. However, this second option would have limited political support, as it would place extra requirements on smaller – and not systemically risky – funds.

The ECON committee is putting together two impact assessments to “fill in the holes in the Commission’s one,” says committee head Sharon Bowles (ALDE, UK). The first will be released at the end of October and the second at the end of November.

OVERLAP

MEPs are also concerned about the proposals overlapping with existing and up-and-coming legislation, including UCITS, the Markets in Financial Instruments Directive (MiFID, 2004/39/EC), the Capital Requirements Directives (2006/48/EC and 2006/49/EC), the Transparency Directive (2004/109/EC), the Prospectus Directive (2003/71/EC) and the Commission’s supervisory package (released on 23 September).

For example, some companies registered under MiFID may have to register again under the AIFM directive.

But the Council wants clarification on whether this “double authorisation” would be necessary for firms marketing – but not managing – funds.

Rapporteur Jean-Paul Gauzès (EPP, France) is aiming to have his draft report finished by December, with a 21 January 2010 deadline for tabling amendments. The idea is to vote on the text in committee in April and have a plenary vote in July. He has previously estimated amendments to the report in the hundreds.

Parliament’s timeline

10 November: Parliamentary hearing and workshop

1-2 December: Draft Gauzès report

12 April 2010: Vote in ECON

May 2010:Three-way talks with Commission and Council

July 2010: Vote in plenary