Church Commission urges EU rethink on hedge funds
The Church of England, one of whose commissioners last year described hedge funds as ‘bank robbers’ following their short-bets on UK bank stocks, has emerged as an unlikely defender of the industry as it faces the prospect of tough new regulation from the European Union.
A group of six of the UK’s largest charitable foundations, including the Church of England, has told a House of Lords committee that the EU’s proposed directive would "significantly restrict our ability to generate funds to pursue our charitable missions and thus reduce our impact for public good".
In a written deputation to the House of Lords last month, the Church Commissioners and five of its peers said the EU draft directive seeking to regulate hedge funds, would bar it allocating to non-EU hedge- and private equity funds.
The House of Lords committee took submissions on the directive until September 9. The committee is aiming to give its opinion on the directive, but it has not provided a date by which this is expected to be formed.
The Church Commissioners include the Archbishop of York, John Sentamu, who last year labelled funds short selling some UK banks as "bank robbers."
While supporting the EU’s aim to shine a light on the often discrete industries, the not-for-profit bodies said it severely limited choice and would "limit the scope and potential return of our investment portfolio and hence reduce our charitable spend. We must have freedom to select the best investment managers and funds”.
The group added: "Up to 95% of hedge funds are currently either not domiciled in the EU or have non-EU managers. We believe there is a significant risk that many of the best will stop raising capital in Europe rather than attempting to comply with onerous EU regulations."
The other five bodies behind the response were the Wellcome Trust; Nuffield Foundation; Esmée Fairbairn Foundation; the Paul Hamlyn Foundation; and The Henry Smith Charity. Together the six have £19.5bn (€21.2bn) to invest, and spend about £900m a year on projects from medical research to education and religious ministry.
The EU's rules, still under consultation, would bar managers outside the EU from marketing to EU-based investors. EU-based managers also would be barred from doing so until they submitted to regulation involving disclosure of data to regulators and investors, adherence to leverage caps, and enlisting EU-authorised credit institutions as depositories.
The European Commission's alternatives committee is meeting today to discuss the directive but few practitioners expect the controversial directive to take effect as it stands. The European Parliament will consider amendments to it next month. Its first reading is slated to end in mid-December with a plenary vote in parliament.
--write to dwalker@efinancialnews.com
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