ESMA, the Paris-based European Securities and Markets Authority, is due to make recommendations this month as to whether hedge funds, private equity and real-estate funds based in some countries outside of the European Union should be able to continue selling products within the 28 nation bloc.
ESMA’s recommendations could decide the future of London as the hedge-fund capital of Europe, along with the $906 billion of assets that money managers control. Any opinions will be closely monitored by London-based fund managers who were last week reported by Finance Magnates to be considering boosting their presence in the EU to ensure they could continue distributing funds on the continent. Their recommendations could become a template for when Britain leaves the EU.
The decision could set a precedent for UK alternative funds and their access to a marketing passport for European investors post Brexit. In the event that other third countries are allowed access by ESMA, it will make it easier for London funds to get approval.
The Alternative Investment Fund Managers Directive passport for non-EU funds may become mandatory from 2018 at which point, only investment firms based in the bloc will be able to sell their products to European clients once the new rules come into force.
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About 85 percent of Europe’s hedge-fund assets are currently managed out of London, making it the second-largest centre after New York.
ESMA is expected to make a recommendation to the European Commission this month on whether to extend passporting to funds in countries with similar rules to the EU. Countries being considered are: Australia, Bermuda, Canada, the Cayman Islands, Hong Kong, the Isle of Man, Japan, Singapore and the U.S. The Commission is reportedly awaiting ESMA’s advice but has not yet taken a decision.
The watchdog recommended last year that Jersey and Guernsey be admitted to the EU passporting regime, while Switzerland should gain access after adopting new rules. If the UK opts to follow the Norwegian example for its relationship with the EU, the industry may continue to have access to the single market without a passport.