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William Hutchings

04 Oct 2010

Christine Lagarde, France’s finance minister, has an impeccable argument against giving non-EU alternative investment fund managers free access to EU investors – a suggestion that she made last week, to the horror of US hedge and private equity fund managers.

If EU managers are going to have to satisfy all the rules of the EU’s Alternative Investment Fund Managers directive in order to get access to EU investors, then so should non-EU managers, she argued. To do otherwise would unfairly handicap EU managers.

So let’s include that in the marketing rules proposed by the EU’s Alternative Investment Fund Managers directive, she proposed. Let’s do it by setting a minimum standard for the private placement rules, which European countries have until now been using to allow sophisticated investors to invest in whatever funds they think best. The minimum standard is full compliance with the directive.

This is logical. It is also hopelessly impractical. To give one example of the difficulties, it would be up to a non-EU manager’s regulator to check the manager’s compliance with the EU directive. Does anyone seriously expect the US Securities Exchange Commission to accept this role?

Lagarde knows this. What France really wants is to preserve its own rules governing the sale of funds to French investors. If France’s private placement rules are embodied in the directive – and, crucially, are applied to all managers globally – then France will be happy to let the directive replace its rules. But Lagarde would be just as happy for France’s private placement rules to be preserved in s