A leading hedge funds lawyer has warned that the Alternative Investment Fund Managers Directive (AIFMD) – the latest draft of which was released last week – is causing “a lot of concern” among US managers, who believe the EU is “out to get them.”

The European Commission's latest draft has caused consternation within the hedge fund sector due to the hard line it took on several key issues, including custody and delegation, which diverged significantly from advice issued by Esma, the European securities regulator.

“US managers are already reeling from a raft of US regulatory reforms and now think that the EU is out to get them,” Dale Gabbert, a partner at Reed Smith, told HFMWeek. “It is unrealistic to expect that you can create 'fortress Europe' and exclude US managers by imposing equivalency requirements that the US will not accept. The institutional investor community wants access to US managers.”

Gabbert called the “divergence” between Esma’s advice and the draft issued by the commission “troubling”, saying it undermined confidence in the securities agency.

“If you can't deal with ESMA having confidence that they call the shots on the detail of financial regulation what do you do - hire an army of lobbyists?” he said. “Why bother engaging with the regulator if they aren't actually in charge?”

He also warned that the custody provisions contained within the latest draft would cause smaller players to exit the market, while the delegation clause “attacks the very costs savings that have made funds so popular as investment vehicles” would.

As HFMWeek reported last week, hedge fund industry lobbyists were left “deflated” by the EU Commission’s decision to reinsert many of the AIFMD’s stricter provisions into the latest and potentially final draft.

This article first appeared in HFMWeek on 5 April 2012. © Copyright HFMWeek 2012