A quick guide to the regulation of hedge funds in the EU

1. Current regulatory framework

Hedge funds in the EU are currently regulated by the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive. Once registered in one EU country, a UCITS fund can be freely marketed across the EU. The UCITS Directive has been the basis for an integrated market facilitating the cross-border offer of collective investment funds, which are also regularly sold to investors outside the EU where they are highly valued due to the high level of protection they afford investors.¹

2. Proposal for a Directive on Alternative Investments

Complementing the UCITS Directive, and as part of its asset management policy, the European Commission adopted a legislative proposal for a Directive on Alternative Investment Fund Managers (“AIFM”) on 29 April 2009. The draft Directive proposes to introduce harmonised requirements for entities engaged in the management and administration of alternative investment funds (“AIF”) that are not caught by the UCITS Directive. Its underlying aims are to both establish a secure EU framework for the monitoring and supervision of risks posed by AIFM, and permit AIFM to provide services and invest their funds throughout the internal market. Representing around €2 trillion in invested assets, the AIF sector includes not only hedge funds and private equity, but also real estate funds,
commodity funds, infrastructure funds and other types of institutional funds.

3. Proposal Tracker

Click here for an update on the status of the proposal as it progresses through the EU’s decision-making process.

4. Related areas

The Commission is also considering the regulation of the following three areas:

1. Non-harmonised retail funds
2. Packaged retail investment products
3. A European private placement regime

For further information, please contact:

Kiran Desai
Partner
kdesai@mayerbrown.com
+32 (0) 2 551 5959

1. In an attempt to simplify the UCITS Directive, the Commission adopted a legislative proposal for a recast of the 1985 UCITS Directive on July 16, 2008. The proposed changes remove administrative barriers to the cross-border distribution of UCITS funds, create a framework for mergers between UCITS funds, allow the use of master-feeder structures, replace the Simplified Prospectus by a new concept of Key Investor Information and improve cooperation mechanisms between national supervisors.