Hedge fund and private equity lobby groups AIMA and EVCA
The financial crisis focused attention on the activities of ‘alternative investment’ firms such as hedge funds, which specialise in speculative investments, and private equity firms. Following calls for stricter regulation, the investment industry launched a deceptive lobby campaign claiming tougher regulation would make Europe less competitive. As a result the new rules in the pipeline lack real teeth.
Financial regulation was under the spotlight following the financial crisis in 2008, with questions raised about some funds’ activities. Private-equity funds were criticised for asset-stripping companies before selling them for a quick profit, leaving the company decimated.
Hedge funds were criticised because of the lack of transparency in their activities, which often involve moving large amounts of money around the market in search of short-term profits. Short-selling and speculative investments in currencies or shares can have dramatic impacts on market prices, potentially destabilising the economy.
When the European Commission proposed new rules in the Alternative Investment Fund Managers (AIFM) Directive, the proposals were met with a furious attack from the financial industry.
The Alternative Investment Management Association (AIMA) and the European Private Equity and Venture Capital Association (EVCA), both of which lobby on behalf of alternative investment sectors, unleashed one of the biggest lobby battles in EU history aimed at protecting the industry against regulation.
When the draft law was discussed in the European Parliament in spring 2010, an estimated 900 of the 1700 amendments submitted came from industry lobbyists.
AIMA and EVCA claim their members played no role in causing the financial crisis and have employed a range of deceptive tactics to successfully make their case.
For example, EVCA sent a letter to the Commission which appeared to be written on behalf of 700 small and medium sized enterprises, warning that the directive would damage for them. The vast majority of signatures on the letter coming from private equity funds that were owned, part-owned or financed by members of EVCA.
The industry has also engaged prominent politicians to speak on its behalf. When London’s mayor Boris Johnson spoke in Brussels in favour of the investment fund industry, he was accused of being “bought off” as more than half the money donated to his mayoral campaign had come from the financial sector including hedge funds and private equity.
AIMA is also accused of scaremongering, having claimed that regulation would lead to massive job losses because hedge funds would move overseas and pension fund earnings would be reduced. The head of AIMA went as far as warning that the EU Directive would hurt “schools, hospitals, shopping centres, things that affect ordinary EU citizens.”
As a result, the Commission’s proposals have been weakened considerably.