Sweden urges turning heat down on alternatives
Sweden has started its six-month presidency of the European Union by warning against the "overzealous" regulation of hedge funds and private equity, to the relief of the UK alternative funds industry.
Mats Odell, the Swedish minister responsible for financial markets, announced last week the European Commission's controversial draft directive on alternative investment funds was like a "rough diamond" in need of "polishing".
"It is not private equity that caused the crisis, nor hedge funds," he said. "But in some countries, the political debate portrays private equity and hedge funds as the problem. That's not the same as saying we shouldn't regulate them, but the aim is to have sound regulation and not to kill the industry."
Andrew Baker, chief executive of Aima, welcomed the comments.
"We're delighted to hear such a public comment so early on in the Swedish presidency," he said.
Richard Saunders, chief executive of the IMA, also expressed his support. "The Swedes are showing a refreshingly pragmatic approach and look set to lead the member states in significantly redrafting [the directive]," he said.
The proposal, published in April in the wake of the G20 Declaration on Strengthening the Financial System, has been widely criticised in the industry for taking a 'one-size-fits-all' approach.
Mr Saunders said: "The directive has, by common consent, been poorly drafted by the Commission, taking no account of its myriad impacts, not just on hedge funds and private equity funds, but also on the wider industry."
The directive covers all non-Ucits investment vehicles, including investment trusts. Guy Rainbird, head of public affairs at the AIC, said Mr Odell's comments were "very welcome", as the directive duplicated the EU's existing rules on publicly listed companies.
"It would go a long way to solving the problem if investment companies traded on regulated markets were simply excluded from the directive," he said.
Separately, the industry broadly welcomed the European Commission's move to regulate the $600trn (£367trn) off-exchange derivatives market last week.
Charlie McCreevy, commissioner for the internal market, published a communication on Friday outlining a plan to enforce the use of central clearing platforms for key over-the-counter derivatives, such as credit default swaps.
In a statement, he said: "Derivatives markets play an important role in the economy, but the crisis has shown they may harm financial stability."
The European proposal is less radical than its counterpart in the US, which includes plans to bring more mainstream derivatives onto an exchange.
Mr Baker said the announcement was a step in the right direction, but remained sceptical it could be made to work.
"The devil will be in the detail," he warned. "There's a lot of rhetoric out there, and turning that into reality is going to be very difficult in practise."