US wades into hedge fund tussle in Europe

City A.M. Reporter
US TREASURY secretary Tim Geithner has warned the French economy minister Christine Lagarde that curbing foreign hedge funds in Europe could cause a rift between the continent at the US government.

In a letter, sent late on Tuesday and seen by journalists, Geithner increases pressure on Paris to allow concessions on new European controls for private equity and hedge funds.

Officials familiar with US thinking said France’s position had antagonised Washington, which is worried that American hedge funds will be blocked from Europe, and that the row could undermine France’s upcoming presidency of the Group of 20 countries.

France joined European diplomats and lawmakers yesterday in the latest attempt to break the impasse on the shape of the new EU rules, entitled Alternative Investment Fund Managers Directive.

But negotiations remain difficult after Lagarde warned last week she would stand her ground in opposing part of the law that would make it easy for foreign funds to work in the EU.

Lagarde believes issuing a 27-country EU licence to foreign funds would be a mistake because controls on those operators are unlikely to be tight. Others suspect her of taking a swipe at London, whose fashionable West End is home to most European hedge funds.

In his letter, Geithner writes: “A proposal that limits or delays the access of third country firms to a passport -- while granting EU domiciled managers and funds access to the European market -- would be discriminatory and contrary to G20 commitments.

“We would consider adoption of such a proposal as unfair and damaging to our shared interest in maintaining an open, global financial system.”

George Osborne, who has argued on the side of Washington for an EU licence for foreign funds, also received a letter from Geithner explaining his position.