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EU tax revenues of €9.2 bn under threat from EU's AIFM Directive

Ministers must have the courage to resist protectionism

(PresseBox) (London, ) As EU Finance Ministers meet on Tuesday to reach an agreement on the EU's proposed AIFM Directive, Open Europe warns that failure to agree proportionate regulation could hurt investors, the industry and the wider EU economy.

According to Open Europe estimates, the hedge fund and private equity industries contribute €9.2 billion in tax revenues to the EU economy every year - an amount under threat if the Directive is passed in a flawed form. The taxes raised from these industries in the UK alone are enough to pay for the salaries of over 200,000 nurses.[1]

In addition, if not substantially amended, the Directive could cost European investment firms around €8.2 billion by 2020 - a cost which in large part will be passed on to investors.

Research by Open Europe shows that EU Finance Ministers could drastically cut these costs by:

- Resisting overly strict restrictions on funds and managers based outside the EU. Proportionate rules for marketing offshore funds in the EU would boost returns and choice for investors (including pension funds), while providing more capital for European firms.
- Introducing more flexible rules on which depository institutions fund managers are allowed to use. Rules on custodians which take into account the global nature of the industry would avoid a concentration of risks and unnecessarily large costs for the industry and investors.
- Exempting smaller firms from the Directive. Excluding these smaller players would encourage growth, capital and job creation in Europe - and is consistent with the EU's 'Better Regulation' principles.
- Exempting listed, closedend funds from the Directive, for example Investment Trusts. These companies differ fundamentally from other types of funds covered by the proposed rules and are already subject to a sufficient degree of regulation in the UK and EU.

Open Europe Director Mats Persson said:

"Ministers and MEPs have come a long way since the original proposal was tabled, and should be congratulated for their efforts. However, rather than turning this Directive into a catalyst for stability, transparency and growth, some of them now seem more focussed on raising barriers against the rest of the world."

"This is a terrible time to place unnecessary burdens on a sector that could help Europe cope with its challenges of low growth, large public deficits and an ageing population. Ministers must have the courage to resist all forms of protectionism and populism. Failure to do so will cost Europe dearly."

Notes for editors

1) In a study published in September last year, based on a survey of over 160 fund managers, Open Europe estimated that the hedge fund and private equity industry contributed €9.2 billion to the EU economy in tax revenues. €6.1 billion of this amount was raised in the UK.

In the same study, Open Europe estimated that the Directive would cost private equity and hedge fund industries between €1.3 billion and €1.9 billion in the first year. The annual recurring cost was estimated at between €689 million and €984 million (expected to drop substantially after 8-9 years). According to these estimates, by 2020, the Directive will have cost these two industries between €6.8 billion and €9.6 billion, with a mean estimate of €8.2 billion (using Present Value of the cost and assuming that the Directive will come into force in 2012).

To read Open Europe's study on the impact of the AIFM Directive, including recommendations and an explanation of the methodology used, click here: http://www.openeurope.org.uk/research/aifmd.pdf

To read Open Europe's briefing on Investment Trusts and the AIFM Directive, click here: http://www.openeurope.org.uk/research/aifmd-trusts.pdf

[1] Based on a mean nurses' salary of £25,900

Open Europe

Open Europe is an independent thinktank calling for reform of the European Union. Its supporters include: Sir Stuart Rose, Executive Chairman, Marks and Spencer plc; Sir Crispin Davis, Former Chief Executive, Reed Elsevier Group plc; Sir David Lees, Chairman, Tate and Lyle plc; Sir Henry Keswick, Chairman, Jardine Matheson Holdings Ltd; Lord Sainsbury of Preston Candover KG, Life President, J Sainsbury plc; Sir John Egan, Chairman, Severn Trent plc and Lord Kalms of Edgware, President, DSG International plc; Hugh Sloane, Founder, Sloane Robinson.

For a full list, please click here:http://www.openeurope.org.uk/...