The Alternative Investment Management Association (AIMA), the hedge fund industry's global trade association, has come in the open against the planned EU laws on hedge funds, which it said will embark on protectionist measures if enacted in its current form.

''The planned laws on alternative investment funds create potentially major difficulties and loss of business for funds and investors outside the European Union,'' AIMA chief executive Andrew Baker in a statement on Monday.

He said the rules would limit European investor choice and damage the competitiveness of the European funds industry.

The vast majority of the $1.4 trillion hedge fund industry is managed either out of the US or the UK.

The draft directive, announced in April, allows managers in non-EU countries to sell their funds to European investors, but only if regulation and supervision is equivalent to that in Europe, and only after a three-year transition period.

 It proposes strict passporting arrangements, leverage limits, disclosure demands for private equity portfolios, and higher capital requirements on alternative investment funds.

As Europe is the main centre for money-raising and management within the industry outside the US, the protectionist overtones in the directive have caused concern.