There could be an increase in hedge funds domiciled in Europe as well as European-based managers, according to a new study by PricewaterhouseCoopers.
The research reviewed regulation of the hedge fund industry at three levels. Firstly, it looked at regulation of European hedge fund managers. The study found that almost 70% of European single manager hedge funds are managed from London despite the fact neither single manager hedge funds nor funds of hedge funds are domiciled in the UK.
One reason was because of the relatively light regulatory regime applied by the FSA that classifies most hedge fund managers as lower risk because of limited public access to their products.
However, in most European countries, fund managers are generally allowed to manage hedge fund products. Minimum capital requirements vary from country to country. In some countries, managers can manage offshore-domiciled hedge fund products; in other countries managers are restricted managing domestic-domiciled hedge fund products only.
But, more recently hedge fund managers are being established in other European countries, including France, Ireland, Italy and Sweden.
Secondly, the study concerned the regulation of hedge fund products. The research showed that most hedge funds are domiciled offshore in the jurisdictions of the Caribbean, Bermuda and Guernsey.
But, European-domiciled hedge fund products are expanding with France, Ireland, Italy, Luxembourg, Sweden and Switzerland all permitting the formation of domestic, single manager hedge funds and/or funds of hedge funds, due to recent legislation.
European-domiciled hedge funds are more strictly regulated than hedge fund products domiciled offshore, with restrictions on, for example, minimum subscription amounts, minimum fund sizes and portfolio investment.
Thirdly the survey looked at the distribution of hedge fund products.
It showed hedge funds have generally been distributed via private channels to institutions and HNWIs, although certain countries have restrictive tax laws that effectively prevent individuals from investing in offshore funds.
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