European lawmakers are inching closer to passing a range of regulations that put hedge funds and private equity firms under tighter government control and subject them to much greater scrutiny.
The moves come as the EU is also attempting to prevent European investors from placing their cash with hedge funds and others located in offshore tax havens.
The new regs, which go into effect in 2012, still need to be approved by individual EU countries and are facing criticism from Tim Geithner, who believes they unfairly penalize U.S.-based funds. Among the most onerous of the regulations is one that will restrict private equity firms from extracting dividends from their portfolio companies within the first four years of ownership. (Remember the German government famously called PE firms "locusts" during the takeover boom.)
The new regs also seek to restrict so-called “golden handshakes” where corporate executives are promised giant severance payments upon a change of control or restructuring. The arrangements have been criticized for some time as incentives for CEO’s to sellout too cheaply.
Hedge funds will also be required to provide the government with details about their trading positions, which could then be subject to limits should regulators deem the trades damaging to the economy. The Brits are fighting the measures, however, so we'll see where they end up.
Britain, home to eight out of 10 European hedge funds and most of the region's private equity, has fought hard to water down the rules, concerned that tough new measures could prompt funds to move to Switzerland, Dubai, Asia or elsewhere.
Many British parliamentarians had hoped to derail the new regime altogether, while Germany and France sought a heavier clampdown.