Hedge fund fury at Brussels directive

They are irate that hard-won compromises over the contentious Alternative Investment Fund Managers Directive appear to have been ditched by the EC, potentially damaging their business and preventing US and Asian fund managers accessing European investors.

The row has been triggered by the circulation of a 110-page EC draft text of "supplementing rules" aimed at enforcing the directive.

Fund managers in the $2 trillion alternative investment market are particularly aggrieved that the EC appears to have rejected much of the advice of the European Securities and Markets Authority, over what was already highly contentious legislation.

One source said: "Much of the text it proposes is now extremely dogmatic and unworkable." He said the row had become political, with a number of member states, including the UK and the Netherlands, seeing the draft as "a massive power grab by the commission".

Fund managers say that, under the draft text, custodian banks would face increased liability for investment losses, overall fund borrowing would be limited and fund managers outside the EU would find it harder to access EU investors.

Commission sources are trying to play down the row, but Andrew Baker, chief executive of the Alternative Investment Management Association, was last night reported as saying: "We are concerned that this draft regulation appears to significantly and substantially diverge from the Esma advice."