Hedge funds and Private Equity - PES

in the lowering of social and labour standards as a direct consequence of the manner of financing.
The door should clearly be left open to desirable investment strategies.
In the following section, priority proposals to be supported by the PES Group are set out.
5.1 Hedge Funds
Harmonisation of European HF and creation of a single supervisory body
Our view is to fully harmonise European hedge funds (either single strategy, or FOHFs) in
order to create a unitary category of onshore funds with a common minimum investment
threshold, which could be lower in the case of FOHFs. By definition, it will never be possible to
prohibit offshore funds at a worldwide level. So it seems more realistic to develop an onshore
regime able to compete with offshore funds: it would obviously not prevent some investors from
keeping their activities secret in offshore funds but it would offer an alternative choice for the
rest of investors, through a higher level of safety, a guaranteed level of professionalism of fund
managers, and an overseeing by regulators. Such EU regulated products will be offered as
complementary to offshore funds, but their very existence will reduce the relative size of the
offshore market.
This EU regulated regime would not forbid Member States from retaining nationally regulated
regimes. It should be primarily designed around the need for regulation of the professionals
involved in the ‘value chain’: management company, and depositary/prime broker. It would focus
on: registration of these professionals in the EU, a requirement for them to be fit and proper
persons, minimum capital requirements and minimum rules on valuation of assets.
We are fully aware of the political difficulty of introducing a common supervision of such products
undertaken by a unique Supervisory Body (for instance a dedicated division of the ECB).
Nevertheless we consider this the only effective solution to achieve such an aim. Therefore our
target would be the introduction of a specific family of registered European single strategy funds
whose products and managers should be authorized and monitored by a unique specialised and
highly professional Authority, operating to reduce (and not to increase) the “regulatory arbitrage”
provided by the main offshore locations (for instance in terms of length of the time to authorisation
for new products or new investment companies). The second leg of this new European
regulatory architecture should be the elimination of all the fiscal transparency incentives granted
to the investment undertaken by institutional players (onshore FOHFs included), in vehicles not
belonging to the above mentioned new family of European registered funds.
New and better information standards
New standards relating to the sale and promotion of alternative investment products need to
be developed to protect consumers from mis-selling and misrepresentation of risk. These
include:
minimum investments for retail investors purchasing alternative investments directly without
regulated advice. A minimum investment of Euro 100,000 is appropriate;
rules should be developed to ensure that claims relating to investment performance and risks
are honestly and clearly communicated to consumers. This means that promoters or intermediaries
should not be allowed to be selective about the time periods used in promotions.
Moreover, the use of independent benchmarks should be stipulated to prevent promoters
selecting favourable investment universes to compare products;
Part III – Lessons to be drawn for future regulation
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