UK - Hermes BPK Partners chief executive officer Matteo Perruccio said Europe's draft plans to regulate its alternative investment funds could be a boon to investment consultants if it goes ahead as planned.
In its present guide, the Alternative Investment Fund Manager directive would require managers to be regulated before they can market funds throughout Europe. It would also introduce various new reporting requirements for regulated hedge fund managers, and corporate governance standards such as separate custody of assets and independent portfolio valuation.
Perruccio said in an interview one of the more contentious provisions in it - an effective ban on EU investors from holding hedge funds that are based outside the EU - could create work for advisers.
"If you are a pension fund and have bought into US managers, you would potentially have to liquidate them over time, and find others who meet the necessary criteria of the directive.
"Pension managers have other work to do, so I expect consultants will grow their business as a result, helping investors identify alternative managers who meet the requirements," he said.
Hermes BPK Partners runs $1.4bn in hedge fund investments of the BT Pension Scheme.
Like all funds of hedge funds, Perruccio and his team could potentially face a similar task of divestment for Hermes BPK's non-compliant funds, but he added funds of funds could also pick up work doing due diligence on new alternate funds for end investors.
He said he is in favour of "balanced, thoughtful regulation. Regulation is necessary, and good, for the industry."
He added: "What is unfortunate is how slow the alternative industry has been in articulating with one voice what they feel is both good and bad about the directive.
"Most fund managers that we speak to have said they are in favour of intelligent and thoughtful regulation, they are not saying they want to be below the radar."
Perruccio said overall, the directive is "deeply flawed and in its present form is extremely negative for the alternative industry in Europe".
It is still to be voted on, and has undergone significant amendment since it was published last April.
Gordon Brown recently won approval to delay its passage through the European Commission until after the UK election, expected in the coming two months.
The European Parliament economic and monetary affairs committee, however, reached a compromise agreement on the scope of the directive last week. (Global Pensions; March 18, 2009)
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