Global hedge fund industry association, AIMA, has warned that a provision of the Alternative Investment Fund Managers (AIFM) Directive that is currently being debated in Brussels is protectionist.

AIMA’s expression of concern comes after the publication of the most recent AIFM Directive compromise text by the current Presidency of the European Council, Spain. The new text is being debated by the AIFMD Council Working Group in Brussels this month.

The Spanish text reinstates a provision from the original draft that may result in EU investors such as pension funds being prevented from accessing non-EU funds and managers. The provision – Article 35 – had been removed from the Directive by the previous Presidency, Sweden.

Under Article 35, non-EU based hedge fund managers would only be able to market funds within the EU if there were co-operation arrangements in place between the regulator of the manager’s jurisdiction and that of the EU Member State in which the investors are located.

Andrew Baker, Chief Executive Officer of AIMA, said, “Stipulating that these co-operation arrangements must be in place sounds reasonable enough but we are worried that they would be difficult to establish and to comply with. The practical consequence would be that the E.U. market would be closed to non-E.U. funds and managers with obvious protectionist implications.

“European institutional investors are currently free to seek out the best managers globally. Any restrictions imposed on European investors would also hit asset managers in financial centres such as the United States, Canada, Switzerland, Hong Kong, Singapore, Japan, Australia and South Africa.

“With the Council Working Group debating the Spanish compromise text this month, this represents a critical moment in the process. We hope all parties concerned reflect on the global consequences of this provision and reach a sensible and workable solution.”