Hedge fund regulation and the alternative investment fund managers directive

Abstract

Within the context of the contemporaneous international political economy’s impact on financial regulation, hedge fund defining characteristics are identified, delineating parameters crucial to comprehending the final regulatory initiative. Conventional motives for regulating, fusing academic and practical observations, reveal the potential impact of hedge fund activity on market integrity, systemic stability and investor confidence. Sui generis motives for regulation are extrapolated, their specificity taking cognisance of hedge fund idiosyncrasies, adding depth to a recondite consideration of themes underlying motives for regulation and their colouring of the substance of that regulation. The third chapter entertains a brief consideration of principles underlying collective investment scheme regulation generally, proceeding to a hedge fund specific foundation for the conversion of academic, conceptual and practical considerations identified to be converted to regulatory substance. The Alternative Investment Fund Managers Directive, covering all non-harmonised investment funds (of which hedge funds are but one species) is assessed, its niche clarified and fundamental aspects of its scope, nature and manifest shortcomings discussed. Focusing on local Professional Investor Funds as distinct legal entities, their suitability for hedge fund structures is evidenced. The Directive’s scope and focus on hedge fund counterparties postulates assessment of regulations for investment service providers. A tentative case for a diverse transposition methodology is made, with a commentary on the suitability of traditional methods of directive transposition. Future trends in the onshore investing environment, potentially weighing on hedge fund promoters’ holistic view of regulatory incursion and alternative avenues for future growth, as well as prospects of success for initiatives like the Directive formulating a basis for transnational hedge fund regulation, are also identified.