(Repeats with no change to text)
* New EU-wide rules for hedge funds from July 22
* One-year transition period will be closely studied
* Irish regulator expects a jump in applications to trade in
EU
* Attention on rules on managers’ remuneration
By Carmel Crimmins
DUBLIN, July 17 (Reuters) – One of Europe’s top regulators
has some good news for the hedge fund industry; pay curbs are
not on the agenda.
While they will avoid the caps on bonuses facing bankers,
Europe’s hedge fund managers can still expect restrictions on
the manner and timing of their pay under new regulations coming
into force on Monday.
The Alternative Investment Fund Managers Directive (AIFMD)
is the European Union’s attempt to help protect investors and
Gareth Murphy, a former hedge fund manager and equity
derivatives trader with JP Morgan, is one of the key
figures behind it.
“We are only beginning to see how it is going to play out,”
Murphy said in an interview in his office in Dublin, where he
now heads the markets division at the Irish central bank.
As chairman of the committee dealing with investment
management at the European markets watchdog ESMA, Murphy helps
frame regulation for funds based in the European Union, with
around 8 trillion euros in assets under management.
AIFMD, which effectively creates a single market for hedge
funds in the 28-nation bloc, requires managers to comply with a
host of new regulations. These include minimum capital levels
and disclosures to investors and regulators. One rule will limit
the amount of any bonus paid in cash to 50 percent of the total.
Critics argue that the rules could increase systemic risk in
the industry by driving some funds outside the European Union,
where they can trade with less scrutiny.
Murphy disagrees. Under AIFMD, funds based in the EU qualify
for a ‘passport’ allowing them to be sold in every member state,
encouraging funds to come into the fold to reach more clients.
“Firms have applied to us for AIFM (Alternative Investment
Fund Manager) authorisations and some of them are looking to get
up and running as quickly as possible,” he said. “These are the
headline names in the asset management space.
“I am sure we will see a new surge of applications within
the new world.”
PAY RULES
Hedge fund managers face a transitional year before the new
rules take full effect. Many are looking to see whether any EU
states opt out of some or all of the remuneration guidelines.
Malta, which competes with Luxembourg and Ireland as a hub
for international funds in the Union, recently said it would not
apply the remuneration guidelines to “delegates” – managers
based outside the EU who work for hedge funds inside it.
Britain’s financial regulator said last month it has still
to decide whether or not to comply in full with the remuneration
guidelines.
Ireland, the world’s biggest centre for hedge fund
administration, would face a competitive disadvantage if other
countries did not adopt the rules on pay.
“It would raise significant questions for sure,” said
Murphy.
“I appreciate that there are challenges there. Those
challenges are particularly acute if other jurisdictions don’t
deliver similar sorts of remuneration rules.”
EMBARRASSMENT
Ireland’s funds and investment management industries, which
Murphy supervises, have remained largely divorced from the woes
of the country’s banking sector, which forced the government
into an EU-IMF bailout in 2010.
But he has felt a sense of shame over the behaviour of Irish
bankers, caught joking about the bailout in taped conversations
recently aired in the media: “It is a source of embarrassment
without doubt,” he said. “We are conscious of that.”
The 43-year-old native Dubliner has relished helping
overhaul the central bank in the aftermath of the crisis. After
joining in the autumn of 2010, he added 60 people to a division
now numbering 160.
He is also pushing the use of technology. When his division
moved to their current offices in late 2010, the funds
authorisation section had to be located in the basement to
ensure tonnes of paper did not put a strain on the building.
The central bank is now aiming for a fully paperless fund
authorisation process by the first quarter of next year.
While his role at the central bank and within ESMA is less
of an adrenalin ride than his days on the trading floor, Murphy
likes the challenge nonetheless: “Bismarck likened making laws
to making sausages,” he said. “I think it is quite interesting
to be inside the sausage machine at this point in time.”
(Editing by Alastair Macdonald)
