Hedge fund body fears political meddling in EU plans

LONDON (Reuters) - The drafting of the European Commission's directive on hedge funds was a rush job without proper consultation and looks to have been subject to "undue political pressure", industry body AIMA said on Thursday.

The Alternative Investment Management Association said it was concerned about the way the Alternative Investment Fund Managers directive, covering hedge funds, was drafted. The publication of the draft directive has been postponed from this week to Wednesday, April 29.

However AIMA did not say what it objects to in the EU proposals. A recent draft from the EU seen by Reuters said managers of hedge funds will need to be registered, hold a minimum level of capital and disclose information on borrowing to regulators.

The hedge fund industry has been increasingly active in pushing its case as the debate over regulation rumbles on. AIMA has offered concessions over information sharing and transparency but says it is frustrated by what it calls baffling political rhetoric.

AIMA fears the proposed EU measures could be inappropriate and said that a flawed directive could have major negative consequences for several key European financial industries.

"We are also concerned that the process of drafting the directive has been subjected to undue political pressure," AIMA Executive Director Florence Lombard said.

"There has been much rhetoric from various political organisations on the directive, most of which appears designed to satisfy domestic audiences ahead of the forthcoming European elections rather than to secure an effective and sensible solution to identified problems."

AIMA also said it looked as if the drafting hadn't been co-ordinated with the Financial Stability Board and the International Organization of Securities Commissions and said it was unclear how the EC's directive would fit in with the G20's plans.

European leaders such as France's Nicolas Sarkozy and Germany's Angela Merkel have been vocal in their calls for regulation of hedge funds, which have come in for criticism from some politicians and commentators over the practice of short-selling.

Lawmakers have been concerned about potential systemic risks posed by hedge funds since the 1998 collapse of U.S.-based Long Term Capital Management, while safeguards on client money have been in the spotlight in the wake of U.S. financier Bernard Madoff's massive fraud.

AIMA represents more than 1,100 hedge fund firms in more than 40 countries.

(Editing by David Holmes)