Hedge funds have become global investment products. As the number of funds and the amount of assets managed has grown, so have the efforts to regulate hedge funds. Managers need to consider the regulatory environment of jurisdictions worldwide, such as those in Europe and Asia.

39.4.1 Hedge Fund Regulation in Europe

In November 2010, the European Parliament passed the Alternative Investment Fund Managers Directive (AIFMD) in order to regulate the marketing of alternative investment funds in the European Union (EU). Once the AIFMD takes effect in July 2013, all alternative investment funds, including hedge funds, will be able to be marketed to EU investors only if the fund's manager is authorized by a relevant EU regulator or if it complies with its relevant member state's private placement regimes.12

The AIFMD's most significant effect on alternative investment funds is the requirement of increased disclosure to investors and regulators. The AIFMD introduces the novel concept of an EU-wide passport that is available only to EU-based hedge fund managers. The passport allows each hedge fund manager to market funds to professional investors across member states under the authorization of a single member state. Non-EU hedge fund managers are required to use the revised private placement regime under the AIFMD.

The rights of both EU and non-EU firms to distribute offshore products within the EU to professional investors13 and the ...

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