Buyout firms, hedgies breathe easier on EU rules

LONDON (Reuters) - Hedge funds and private equity firms are becoming more confident that planned EU regulation and UK tax rises will not kill off their industries.

They are fighting stringent proposed regulation which imposes controls on leverage, demands greater disclosure about investments and could hamper the ability of non-EU firms to raise funds in Europe.

However, firms left a briefing with Europe's new single market commissioner Michel Barnier on Tuesday optimistic that he values the importance of London's City for the whole of Europe, said Richard Wilson, chairman of private equity body EVCA.

"(Barnier) recognizes the directive was put together in haste and there are improvements to be made," Wilson, who is also a partner at European buyout firm Apax Partners, told the Reuters Private Equity and Hedge Funds Summit.

The industry has already seen some changes in its favor to the Alternative Investment Managers Directive, on elements including valuators and capital requirements.

"A number of the more difficult areas have become much more reasonable," said Andrew Baker, CEO of hedge fund body AIMA.

Despite the encouraging noises, Baker voiced fears that with the timetable so tight and so many issues still to address, it will be tough to push through fully-formed regulation.

Finance ministers will seek a compromise deal on March 16 and the economic and monetary affairs committee in the European Parliament, which has joint say with the bloc's members, votes in April. The aim is to have a final deal in July so lawmakers can address other post-crisis regulation in the pipeline.

"There is such momentum to get everything done in July at first reading," said Syed Kamall, the center-right MEP for London who hosted the Barnier briefing.

The private equity and hedge fund industries are still intent on securing more change to the draft before completion and are encouraged by Barnier's desire to protect the single market.

This gives hope that a so-called passport system will be put in place, which would recognize foreign firms and allow them to raise capital from across Europe, Wilson said.

"Clearly the EU directive and related regulations potentially could impact their ability to raise money outside the U.S. in a very significant way," Bruce Ettelson, who leads law firm Kirkland's private funds group, told the New York leg of the Summit on Tuesday.

LONDON TO PROSPER

Some in the UK hedge fund industry, which accounts for 80 percent of the European industry, have accused EU lawmakers of using regulation to try and harm London's dominant position.

However, Barnier was keen on Tuesday to emphasize his neutrality. "A strong City is good for London, it's good for the UK and for Europe," he said.

There has been plenty of speculation about hedge funds moving outside the EU to Switzerland to avoid higher UK taxes or EU regulations, although few have moved so far.

London-based hedge fund Toscafund said it had an emergency plan to move to Switzerland, but did not expect to use it.

"Do you think living in Geneva is cheap?" said chief economist Savvas Savouri. "Of course individuals will leave ... (But) the idea somehow that we're all going to piddle off to Geneva or Dublin doesn't stand up to any analysis."

Oliver Dobbs, chief investment officer of CQS said: "London provides a lot of things, personally, from an infrastructure point of view. There are schools, hospitals, security ... I don't think different tax regimes will have an enormous effect."

However, poorly-conceived regulation is another matter.

"If you get to a regulatory environment that starts putting up high walls around Europe ... I think you could see the industry having to make some changes," he said.

Opportunities for London were there as well as risks, speakers at the summit said, highlighting it's strength as a western hub for eastern businesses.

And Europe as a whole could stand to benefit if the U.S. raises tax on carried interest, forcing private equity firms to exit listed investments they hold after an IPO, said Bob Long, CEO of Conversus (CONCA.AS) Asset Management.

(Additional reporting by Megan Davies in New York and Hugh Jones in London; Editing by Jon Loades-Carter)