Tuesday, April 28, 2009

Update: AIMA Voices Concern Over the EU Directive on Regulation of Alternative Investment Fund Managers

The Alternative Investment Management Association ("AIMA") released an announcement on the draft EU Directive on Regulation of Alternative Investment Fund Managers which we discussed last week. AIMA states in the announcement that "[t]he drafting of the Alternative Investment Fund Managers Directive has been rushed through in a very tight timeframe without anything like the usual standards of consultation that [AIMA] expect[s] from the Commission." AIMA is "concerned that the process of drafting the directive has been subjected to undue political pressure" and that "there has been much rhetoric from various political organizations on the directive, most of which appears designed to satisfy domestic audiences ahead of the forthcoming European elections rather than to secure an effective and sensible solution to identified problems."

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UK to Change Taxation of Funds

In his recently delivered 2009 Budget, UK Chancellor Alistair Darling outlined the Government's intention to enable UK Authorised Investment Funds ("AIFs") that meet certain conditions to elect into a newly established "tax elected fund" ("TEF") regime. This measure will permit a fund to have a transparent tax status and ensure that AIF taxation takes place at the investor level only, so that investors will be treated as though they had invested directly in the fund's underlying assets. TEFs will be required to divide their distributions into two types, dividend and interest distributions. UK dividend income will remain exempt in the TEF and will be distributed as a dividend, while interest distributions made from all other categories of income will entitle the TEF to receive a tax deduction up to the same amount. The new regime will take effect on September 1, 2009.

Under current rules, AIFs are generally charged a corporate income tax at a special rate of 20 percent, making them less attractive for tax-exempt investors, such as pension funds, charities and individual savings account investors. The Government believes the new regime will enhance the UK's competitiveness in the international market for asset management compared with other leading jurisdictions, such as Luxembourg, Ireland and the Cayman Islands.

Draft regulations introducing the new regime are expected to be published shortly.

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Update: Grassley on the Hedge Fund Transparency Act

As reported by the Guardian, Sen. Charles Grassley explained that the purpose of the proposed legislation he co-sponsored with Sen. Carl Levin, the "Hedge Fund Transparency Act", is to reverse Goldstein v. SEC, the 2006 D.C. Circuit Court of Appeals decision which vacated SEC rules requiring registration of qualifying hedge fund advisers. Under the proposed legislation, the SEC would be granted the necessary authority to reinstate its hedge fund adviser registration rules. Grassley also stated that his legislation would not require the disclosure of the names of hedge fund clients, as had previously been interpreted by many legal commentators.

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