SEPTEMBER 12, 2010, 8:01 P.M. ET
By William Hutchings Of FINANCIAL NEWS
The controversial European Union directive on hedge funds, private equity and other alternative investment managers is heading towards a compromise that will suit the interests of European pension schemes and fund managers.
A parliamentary vote on the Alternative Investment Fund Managers directive, which was proposed by the European Commission last April, has been postponed again from this month to next, according to two sources close to the negotiations.
The decision to delay the vote followed a meeting between the Council of Ministers, the Commission and Jean-Paul Gauzes, the rapporteur leading the European Parliament in the three-way talks.
The sources close to the discussions said Gauzes is under pressure from his own political party, the centre-right European People's Party, to agree a compromise that would resolve investors' and managers' concerns over the so-called third-country rules.
These arose when the commission published its original draft of the directive and included a proposal to abolish national private placement rules. In most European countries, these allow sophisticated investors to invest where they wish. Instead, the commission wanted to create an EU-wide passport for approved funds.
But this change would have prevented EU investors from placing their money with alternative investment managers based in countries outside the EU.
According to the sources close to the talks, the French last Friday demanded the passport idea be scrapped - a reversal of its position two months ago - and the private placement rules retained. The Germans and British also oppose the abolition of the private placement rules, but support the passport.
Two compromises have been suggested. The first proposes that the passport be introduced, but the private placement rules be kept in place for five years and then phased out. The second is similar, except that at the end of five years it proposes a review, rather than a phasing out.
In practice, the second compromise means the private placement rules could be rolled over in perpetuity. This is what investors and managers want, and it is this proposal that has gained favour with the Council of Ministers and the Commission. Gauzes was not available for comment.
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From The Wall Street Journal published on SEPTEMBER 12, 2010, 8:01 P.M. ET
