Regulating Hedge Funds In The Eu The Case Against The Aifm Directive

The present article aims to offer a critique of the recent efforts to regulate hedge funds in the EU and illustrate the shortcomings of the EU's regulatory spree in the field of hedge fund regulation. The analysis suggests that the adoption of the AIFM Directive was not preceded by any thoughtful analysis of the risks emanating from the hedge fund industry but was rather the culmination of the EU's leading Member States, namely France's and Germany's, desire to impose a stricter regulatory regime on hedge funds. The rationales underpinning the adoption of the Directive are the protection of investors and the safeguarding of financial stability. On the one hand, the mandatory investor protection provisions of the Directive impose unnecessary costs on hedge funds managers and sophisticated investors who are unable to enter into mutually beneficial bargains. On the other hand, the provisions of the Directive seeking to tackle systemic risk utterly fail their goal to safeguard financial stability.