Peeling back the layers of the European regulatory onion with Finex’s Andrew Gebhardt
As regulatory bodies implement sweeping new rules for the financial industry in the wake of the ‘08 crisis, an increasing problem lies in navigating these always complex and occasionally differing rules and regs across international boundaries.
JLN sat down with Andrew Gebhardt, managing partner at Finex LLP, to see how the situation is playing out for investment funds in Europe.
The short answer is not well.
The disconnect between U.S. and European regulators is so severe, Gebhardt advocates that small firms looking to expand to Europe should consider joining forces with an entity already licensed to created funds — a company that has already jumped through the European regulatory hurdles and has increased familiarity with local policies.
“I’ve heard many people say that Britain and the United States are two countries divided by the same language,” Gebhardt said. “Our regulations are both written in English but they couldn’t be more different. Things mean different things. The spirit of the law is completely different.”
Partnering up allows managers to focus on building their track record and growing the fund, without the distraction of acclimating themselves to that rule dissociation.
Another issue that European regulators have yet to resolve, according to Gebhardt, is proportionality. Small firms tend to be treated like a large firms without consideration for the fact that their business operations are conducted in a different way with different resources. That particular topic drives at the overarching concern which is a difference in education.
“Futures are very poorly understood by European regulators,” Gebhardt said. The United States, on the other hand, has the advantage over Europe in grasping risk and its relation to returns as well as listed futures.
So, in his case, going from Europe to the United states and not vice versa, he opted to begin from scratch and set up a completely new firm.
“Let’s call it a regulatory hedge — we want our U.S. business to be regulated by U.S. regulators and we want our European business regulated by European regulators,” Gebhardt said. “We don’t want cross-pollination of regulation and the easiest way to do it is to start afresh.”
Besides frustration and confusion, the net result of European constraints is more percentage points being shaved off of performance. That’s money now going to lawyers and regulators — people who “don’t raise your AUM.”
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