GERMANY – The German government has published its draft of the Investment Act which will make hedge funds and hedge funds of funds available to the German retail and institutional investor.

The 170-page draft was issued by the government today, and contains a special section with regulations for hedge funds – the first legal framework for hedge funds in Germany, as hedge funds are currently unregulated.

The proposals will allow single hedge funds to be invested in via “private placements”, while hedge funds of funds will be available to retail and institutional investors. According to HVB Alternatives, no distinctions will be made between domestic and foreign funds, nor is it planned to restrict certain strategies - both leveraging and short selling will be permitted.

Hedge fund industry members are currently trawling through the documentation, before entering into discussions with the Bundesministerium, and their responses are expected over the course of this week.

It is hoped that the bill will come into effect at the beginning of 2004, and the hedge fund market in Germany is expected to be significant as a result.

France is also currently moving towards the regulation of hedge funds. The regulator, the Commission des Operations de Bourse, or COB, is introducing regulations that require the sale of funds of hedge funds to be officially approved. Spain is similarly expected to release new regulation.

Individual country regulations on hedge funds are causing some concern that the European hedge fund market may become more fragmented. At the end of June, London-based alternative investment advisory service, Asterias, reported that the lack of pan-European legislation would make entry into the hedge fund market place difficult for non-European operators.

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