summit4 called for an international effort „to strengthen regulatory regimes, prudential
oversight, and risk management‟ in the global financial system.
In line with international G20 objectives, the European Commission has engaged in a
review of the regulatory and supervisory framework for all financial market actors in the
European Union that embed significant systemic risks to the financial system.5 In the course
of this review the need to design a comprehensive and efficient regulatory scheme for the
AIF industry was identified.6 It is necessary to look at some existing problems in the AIF
industry to identify the core reasons behind this conclusion.
This article will trace the impact and functional aspects of the legislation, and intends
to argue that the all-encompassing scope of the draft Directive,7 renders all AIF subject to the
same provisions despite their respective differences. The discussion will the look in detail at
each actor of the AIF industry potentially affected by the proposed legislation and highlight
the unique consequences that its implementation will have on each of these actors
respectively. Consequences of the legislation common to all actors the AIF industry will then
be outlined, including cost implications and potential consequences for non-EU countries and
Ireland respectively. Lastly, in the final analysis, possible ways in which the draft legislation
may be improved before its implementation will be submitted.
B PERCEIVED PROBLEMS WITH HEDGE FUNDS AND THE AIF INDUSTRY
The High-Level Group on Financial Supervision in the EU and other expert groups entrusted
by the European Commission with the review of financial market actors, concluded that the
systemic risk embedded by AIF has not been regulated sufficiently by current rules and that
enhancement of regulatory measures in financial services, to ensure the safeguarding of
financial stability and the sustainability of economic growth is needed.8 The perceived risks
and existing modus opera ndi which prospective regulation will address are now discussed.
The AIF industry encompasses a diverse range of investment funds including hedge funds
and private equity, as well as real estate funds, commodity funds, infrastructure funds and
other types of institutional funds. These funds employ a variety of investment techniques,
investing in different asset markets and catering to different investor populations.9 Unlike
other structured investment vehicles which operate under consistent supervision by way of
4 ibid. See also: Commission Communication for the Spring European Council Commission calls on EU
Leaders to stay united against the crisis, move fast on financial market reform a nd show globa l leadership at
G20 Press Release IP/09/253 (4 March 2009) and Foundation for European Progressive Studies „Hedge Funds
and Private Equity Regulation - Assessment of the proposed AIFM directive and further proposals for a
comprehensive legal framework‟ (15 April 2009) 2 <http://www.feps-
europe.eu/fileadmin/downloads/political_economy/090425_FEPS_RegulatingHFandPE.pdf > (27 February
5 Commission Communication for the Sp ring European Council Commission ca lls on EU Leader s to stay united
aga inst the crisis, move fast on financia l mar ket reform and show global leadership at G20 Press Release
IP/09/253 (4 March 2009).
e=EN&guiLanguage=en> (27 February 2010).
6 Foundation for European Progressive Studies „Hedge Funds and P rivate Equity Regulation - Assessment of the
proposed AIFM directive and further proposals for a comprehensive legal framework‟ (15 April 2009) 2
(27 February 2010).
7 The Directive encompasses all non UCITS regardless of legal form.
8 The de Larosière Group The High-Level Group on F inancial Supervision in the EU Report (25 February 2009)
15 < http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf > (27 February 2010).
9 (n 2) 1.