Fortunately, some wiser voices are being heard in this debate.
As expected the Swedish presidency
of the EU is taking a rather more measured and co-ordinated approach to the complex issues arising out of the global financial crisis. The pre-G20 summit meeting of EU leaders is part of that more thoughtful approach. The Swedes have realised that crudely attacking London will damage the whole EU and that the AIFMD as it currently stands would effectively prevent any EU citizen, pension fund or investor getting access to a very wide range of offshore funds (and offshore is where they would go under these proposals). Consequently, last week the Swedes told members states that they would prepare a modified version of the directive for discussion at the EU meeting on 22 September, prior to the G20 summit two days later in Pittsburgh.
A similarly conciliatory view is being taken by the new chair of the important European Parliament Economic and Monetary Affairs Committee, Sharon Bowles
, a UK Liberal Democrat. She criticised EU regulators for their "impatience and need to be seen to be doing something", adding that many of the issues that have caused problems in the past are already being addressed by national regulators such as the UK Financial Services Authority.
This does not mean that hedge fund managers can sit back and think nothing will change. There will be new rules, and it is unclear still whether these will be dictated by national regulators, Europe or through the sort of co-ordinated global action that is likely to emerge from the G20 summit. They are likely to be quite tough rules too. However, they will not now be framed in such a way as to "punish" London and New York.
The European Union's headlong rush to be seen to be tough on hedge funds - which many in Europe find an easy target to blame for the financial turmoil of the last couple of years - is being slowed down. The debate on the Alternative Investment Fund Managers Directive (AIFMD) has so far generated rather more heat than light with alot of misguided lobbying from the City of London, epitomised by Boris Johnson's high profile sortie to Brussels. What he, and many in the City, fail to understand is that the supporters of the directive as it currently stands just rub their hands with a ghoulish relish when people complain that it will damage London: that is precisely the point of it as far as many in France, Germany and elsewhere are concerned. They see hedge funds and their various high risk cousins as lying at the heart of the reckless risk culture that brought once famous financial institutions to their knees.