GEORGE Osborne will go to Brussels tomorrow to make the case against controversial anti-hedge fund and private equity legislation, although hopes of averting a draconian crackdown are fading fast.
Osborne has privately admitted that he is resigned to failing his first major test as chancellor, after a last-ditch appeal to delay tomorrow’s crunch vote fell on deaf ears.
One source close to the European negotiations said: “The problem is that the process is so far down the line that [Osborne] is really in no position to influence it.” The UK has no veto at the Ecofin meeting of European finance ministers, meaning it will almost certainly lose tomorrow’s majority vote on the alternative investment fund manager (AIFM) directive.
Only the Czech Republic is openly supportive of the UK, which believes the new regulations will disproportionately damage Britain’s multi-billion pound hedge fund and private equity industry.
Chief among the hedge fund industry’s concerns is the “third country rule” which would restrict European Union investors from investing in non-EU funds. Critics of the new rules say this will restrict investor choice, push down pension fund returns and make Europe less competitive.
Osborne opposes the directive but feels he is powerless to stop it and that it would be pointless wasting diplomatic capital on opposing it vigorously. Although most hedge fund managers are sympathetic to the chancellor, a handful told City A.M. he should be taking a stronger stance. One hedge fund manager complained that Osborne had not made time for a face-to-face meeting with the hedge fund industry ahead of the vote, although others point out he met them regularly while in opposition.