In the United Kingdom, Pensions Join Alternatives Battle

(August 12) – With controversy swirling around proposed European rules that would see regulators curb leverage, raise capital requirements in case of redemptions, and significantly increase transparency for alternative investment managers, previously-quiet UK pension funds have now stepped into the fray, asserting that such rules will only cause harm to institutional investors.

While hedge fund lobbying groups have loudly and unsurprisingly proclaimed their opposition to such regulation – the Alternative Investment Management Association (AIMA), a global hedge fund group, has claimed that the draft directive issued by the European Commission will cost Europe’s pension fund industry up to US$35 billion a year – statements this past week by the United Kingdom-based Hermes Pension Fund Management (‘Hermes’) and the National Association of Pension Funds (NAPF) indicate that pension funds are now getting involved.

“There are unintended consequences from the structure of the directive which would lead us to have substantially smaller choice in terms of the investments we’re able to make,” said Hermes director Kathryn Graham, according to Reuters. “[It would] also, I would imagine… significantly increase costs to the investments we are able to make.” Hermes — the retirement fund management arm of communications-giant BT (and the largest corporate pension plan in Britain at US$50 billion) – fears that more stringent laws would drive some funds out of the European markets, lowering the number of funds to choose from and correspondingly raising the prices for such investments. Joanne Segars, the chief executive of the NAPF, has echoed these concerns.

The proposed regulations fail to garner complete support from elsewhere in Europe as well. Some Nordic countries, having seen outsized returns from private equity in years past, are lobbying to have such funds exempt from some of the more stringent regulation. Ireland, it has been reported by the Wall Street Journal, wants to protect its custodian industry, which would also be affected by the Directive.

European interest groups aren’t the only ones jumping into the fray, however. According to the Wall Street Journal, United States Treasury officials have also started to express displeasure with such a directive, which could, if implemented, shut out some US-based hedge funds from raising money in Europe. While the US is looking into requiring hedge funds to register with regulators, it has stopped short of any leverage limits or redemption requirements.