Institutional investors stand to lose returns

Mercer, European commission, Robert Howiw, alternative investment


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Contact: Mags Andersen
Tel: +44 20 7178 3513

Institutional investors stand to lose returns under new alternatives regulations

London
UK, 25 August 2009

Proposed regulations for the alternative investment industry could harm investment returns for institutional investors unless substantially redrafted, according to Mercer.

The firm believes the regulations are too prescriptive, making them potentially costly and complicated to comply with. This could cause an exodus of managers from the EU resulting in the dilution of the overall quality of providers. The draft regulations also imply that EU based institutional investors may be prevented from investing outside the EU, thus reducing choice and competition.

Robert Howie, alternatives researcher at Mercer, commented: “Our pension fund clients agree that the industry needs improvement and better supervision. However, they also need choice and value for money. They are worried that restricting the pool of alternatives managers will limit their options for achieving returns and diversifying their investment portfolios.

“Hopefully the European Commission will listen to their concerns when redrafting the directive as some of the current proposals may be counter-productive to improving the industry over the long term.”

In its response, Mercer also urges the Commission to consider the range of regulatory approaches outside the EU before requiring other countries to adopt the EU’s approach to regulation and supervision. The areas where investors think the industry needs to improve are not uniquely European and new regulation should reflect the global nature of the industry.

Tom Geraghty, European head of Mercer’s investment consulting business, commented: “Given the complexity of the issues that are being addressed and the international nature of the industry it is essential that this piece of legislation better dovetails with the work being done by other national and international bodies.”

Mercer’s full response "Improving and Regulating the Alternative Investments Industry" was written in part as a response to draft legislation published by the European Union earlier in the summer, but also to cover the areas where Mercer believes the industry needs to improve in general.