Executive summary - Udo Bullmann

long term. Undesirable investment strategy, which aims at short-term leveraging of the investors’own capital as well as that of enterprises, should be hindered by European regulation.. So shouldvery short-term investment with rapid ‘exit’, or the avoidance of standards of investor protectionor which result in the lowering of social and labour standards as a direct consequence of themanner 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 FundsHarmonisation of European HF and creation of a single supervisory bodyOur view is to fully harmonise European hedge funds (either single strategy, or FOHFs) inorder to create a unitary category of onshore funds with a common minimum investmentthreshold, which could be lower in the case of FOHFs. By definition, it will never be possible toprohibit offshore funds at a worldwide level. So it seems more realistic to develop an onshoreregime able to compete with offshore funds: it would obviously not prevent some investors fromkeeping their activities secret in offshore funds but it would offer an alternative choice for the restof investors, through a higher level of safety, a guaranteed level of professionalism of fundmanagers, and an overseeing by regulators. Such EU regulated products will be offered ascomplementary to offshore funds, but their very existence will reduce the relative size of theoffshore market.This EU regulated regime would not forbid Member States from retaining nationally regulatedregimes. It should be primarily designed around the need for regulation of the professionalsinvolved in the ‘value chain’: management company, and depositary/prime broker. It would focuson: registration of these professionals in the EU, a requirement for them to be fit and properpersons, minimum capital requirements and minimum rules on valuation of assets.We are fully aware of the political difficulty of introducing a common supervision of suchproducts undertaken by a unique Supervisory Body (for instance a dedicated division of theECB). Nevertheless we consider this the only effective solution to achieve such an aim. Thereforeour target would be the introduction of a specific family of registered European single strategyfunds whose products and managers should be authorized and monitored by a unique specialisedand highly professional Authority, operating to reduce (and not to increase) the “regulatoryarbitrage” provided by the main offshore locations (for instance in terms of length of the time toauthorisation for new products or new investment companies). The second leg of this newEuropean regulatory architecture should be the elimination of all the fiscal transparencyincentives granted to the investment undertaken by institutional players (onshore FOHFsincluded), in vehicles not belonging to the above mentioned new family of European registeredfunds.New and better information standardsNew standards relating to the sale and promotion of alternative investment products need to bedeveloped to protect consumers from mis-selling and misrepresentation of risk. These include:• minimum investments for retail investors purchasing alternative investments directlywithout regulated advice. A minimum investment of Euro 100,000 is appropriate;• rules should be developed to ensure that claims relating to investment performance and