Hedge funds have expressed concern about the proposed European Commission Directive on Alternative Investment Fund Managers (AIFM).

The Weathering the storm report, compiled by Greenwich Associates for Ernst & Young, featured 100 hedge funds, with total USD 680 billion under management.

More than four in five currently invest in the EU, while three in five have an office or are registered in the bloc.

One in six hedge funds that had “considered” the EC directive reported that they would take their business out of the EU if the regulations are introduced in their current form.

Additionally, 30% of the hedge funds who have EU clients but do not have an EU office said they would not create an office in the bloc if the regulation was approved.

The European funds in the survey also criticised the directive, with more than four-fifths saying that it would increase costs, while just over a quarter believed it would increase investor confidence.

“Although there is a general belief that it is unlikely that the draft directive will be approved in its current form, there is concern as to its motivation, its directional thrust and a sense of disbelief that business legislation could be so politicised, appear so misguided and be promulgated with such a lack of consultation,” said Ratan Engineer, global leader of Ernst & Young’s Asset Management practice.

Nearly half of the 53 US funds in the survey said they were unfamiliar with the proposal, while the figure for the 18 Asian funds was 60%.

Despite large-scale media coverage and comment from leading industry figures, nearly a third of the 29 European funds reported that they were unfamiliar with the draft legislation.