EUROPE - The EU's proposed directive on alternative investment fund managers is too wide ranging in its current form and does not make enough distinction between real estate funds and other alternative investment vehicles, according to legal consultants.

PricewaterhouseCoopers (PwC) has warned the directive catches not only hedge funds and private equity funds, but also real estate funds and other types of institutional funds.

"The Directive is too wide-ranging, catching all collective investment vehicles other than UCITS in its net, which is unnecessary and misguided," said James Greig, partner at PwC Legal.

He claimed its "catch-all effect" could have "unintended consequences" on "sectors of business where no material systemic issues have been identified or which are already subject to perfectly adequate schemes of regulation".

In its current form, the directive does not draw enough of a distinction between "hedge funds on the one hand, and private equity and private equity real estate on the other," argued Anthony Shatz, partner at SJ Berwin.

Shatz said he believed it was wrong to simply group real estate funds with hedge funds, when many of the former hold direct assets or other investments for the long-term.

"They are being held for the long-term not the short-term. They are not assets or securities that are constantly being churned," he said.

Shatz is also sceptical about whether the directive will be able to achieve its political aims in its current guise because, inadvertently, it is likely to put greater pressure on smaller players.

"Arguably, it is going to be harder for the smaller players to meet the capital adequacy requirement than it is the bigger players," he said.

PwC's Greig has also highlighted a similar concern about the potential for the directive to "saddle relatively small funds with big administration and compliance burdens", as a result of the reduced €100m threshold for assets under management.

"The investor protection mechanics (governance requirements, reporting requirements, external valuation and custodian requirements) also appear disproportionate to a regime which is focused on professional investors only," he said.

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