Beyond Ideological Battles: A Strategic Analysis of Hedge Fund Regulation in Europe

The highly politicized debate about the recent Alternative Investment Fund Manager (AIFM) Directive of the European Union led many observers to suspect an ideological battle between countries seeking to impose transnational regulation on financial service industries such as hedge funds and liberal market economies insisting on the benefits of market discipline in order to protect their financial centers. The battle that appeared to particularly pit France against the United Kingdom can thus be interpreted as an example of a regulatory paradigm shift in the aftermath of the crisis. This article cautions against such an ideas-centered account of financial regulation and points to the economic interests that drove the French and German agendas. However, contrary to the assumptions of traditional political economy approaches, national preferences were not simply defined by the aggregate of a country’s economic interests. Rather, industry success in shaping government positions on alternative investment regulation crucially depended on how a given industry fit into the government’s overarching geo-political agenda. By highlighting this feedback loop between government strategy and industry lobbying, the paper proposes a strategic analysis of financial regulation, as opposed to accounts that consider positions to be pre-determined by ideas or socio-economic structures.