Split markets open opportunities for administrators
The extension of hedge funds to a wider audience is creating nascent local markets in Europe each with their own set of regulations. The challenge for fund administrators is to assist local managers in shaping the development of each market.
These regulatory environments, while more restrictive than offshore domiciles, are likely to be good business sources for hedge fund administrators. Requirements for clear reporting of what a fund actually invest in will surely play well to administrators used to taking on such value added tasks.
Alan Dundon, head of product development at BNP Paribas Securities Services explains that these local markets cannot be compared to those serviced by cross-border funds from Dublin or Luxembourg. “The locally domiciled vehicle does provide an alternative to investors hesitant in investing offshore and attaching importance to local regulation and tax laws,” he says.
The development of each local market is also at varying stages. In Germany for example, new regulations were introduced as part of the Investment Act of 2004. A big part of the overall act was levelling the playing field for domestic and foreign long-only funds but the German regulators decided to widen the scope of products included in order to remain a competitive jurisdiction. Further regulation is expected soon. In particular, the market requires some clarification over the role of the prime broker as opposed to the depo bank and the inability for funds of hedge funds to leverage.
Overall take-up has been slow, with BNP Paribas citing only ?1bn under management at the end of 2004 and an expected ?2bn by the end of this year. These figures are well below initial expectations and until now, only 10 hedge funds have been launched, according to the firm.
In France, hedge funds were introduced in August 2003 and in July this year, the market received a boost with the introduction of a new decree by the AMF (the French regulator) which clarified the use of assets held as collateral by the prime broker. The French regulator currently has around 50 ARIA funds with almost 20 fund managers being approved for the sale of ARIAEL funds. Italy has had local hedge funds for five years and Spain is currently bringing in regulations.
But the real question is whether local markets will be able to attract the right mix of people to support eventual demand.
