The main regulatory component of the proposed legislation is an obligation for EU-based managers of so-called 'alternative investment funds' to register and disclose their activities, in order to improve supervision and avoid systemic risks.
The obligations are not applied to the funds themselves, but only to their managers, "since it is the manager who is responsible for all key decisions," argued EU Internal Market Commissioner Charlie McCreevy.
However, critics recalled that the Commission had pushed for regulation of so-called UCITS funds - EU funds marketed to retail investors - as a means of increasing guarantees to investors.
Moreover, the exemption of funds from the proposed new regulation will leave hedge funds and private equity free to develop their investment policies, despite the fact that their risk-prone attitudes have been strongly criticised during the current financial crisis.
Following heavy pressure from the Socialists in the European Parliament, McCreevy decided to lower the threshold under which managers would not be subjected to the new regulation. Instead of €250 million managed, the new minimum is now €100 million. Even so, the Commission reckons that less than a third of hedge-fund managers will be covered by the directive.
McCreevy gave a helping hand to this under-pressure €2 trillion industry, which is seen as a key "alternative source of capital" for companies.
Indeed, he proposed to make it easier for hedge-fund managers to market their products throughout Europe. Under the new rules, once a manager is registered in an EU country, he will be able to act across EU markets.
In addition, three years after the entry into force of the directive, the EU market should also be opened to third-country funds, like those based in fiscal havens, provided that they comply with "stringent requirements on regulation, supervision and cooperation, including on tax matters," reads a Commission press release.
"The management of offshore funds is an important feature of hedge-fund and private-equity business models. The proposal will provide a safe and secure framework for it to continue," McCreevy said during a press conference.
The Commission adopted a milder approach towards private equity, which is not considered to pose systemic risks, but has been widely criticised for its impact on the employees of the companies it buys out. The threshold under which they will be exempted from regulation is €500 million.