Unless a miracle intervenes, it looks very much as if the European Alternative Investment Management Directive will be voted into law this evening.

On balance, the directive is expected to be very bad for London’s hedge fund industry. However, that’s not to say that there won’t be some beneficial side effects.

The positives

1) Funds will need to be registered in the EU

In order for funds to raise money from investors in the EU, they will henceforth need to be domiciled in the EU. This could be good for London, which is the EU’s hedge fund heartland.

Hedge fund pundits are not so sure, however: “The assumption is that everyone is going to come onshore. It’s more likely that funds will just move offshore to Switzerland or Singapore and not bother with Europe,” says John Godden at hedge fund consultancy IGS Group.

2) More jobs at large institutional investors who move into the hedge fund space

While small hedge funds are likely to balk at the increased level of disclosure and leverage restrictions imposed by the new rules, large institutional investors are already used to such things.

“The big traditional guys are going to deal with this well,” says Godden. “The small guys upon whom this industry has always relied for its ideas and growth are going to be driven away.”

Simon Gleeson, a partner in the regulatory practice at Clifford Chance agrees: “If hedge funds are pushed out of the UK, existing regulated managers may regard this as an opportunity [to expand].”

3) Multiple jobs for consultants and bureaucrats

As things stand, London hedge funds don’t appear to be particularly ready for the new legislation. We spoke to the CIO at one who confessed to not having read it yet.

After tonight, it therefore seems likely that funds will need to employ the services of consultants to bring them up to speed. They may also need to employ additional admin and compliance staff for all the additional regulatory disclosures.

“If you look at Mifid, most of the work was done by consultants and project managers,” says Andrew Shrimpton, member, regulatory compliance at Kinetic Partners. “I suspect this will be the same.”

The negatives

1) Funds will move out of London

There is only real negative: realising the horror of the new legislation (and, in particular, the disclosures around short selling), funds will simply move somewhere beyond its reach.

“Sadly, some funds will simply decide that it’s more trouble than it’s worth to have a London office,” adds Shrimpton.

“I don’t think you can actually run a hedge fund under the proposed architecture,” says Gleeson at Clifford Chance. “Hedge funds are going to move out of Europe and base themselves in Singapore and Switzerland, which will welcome them with open arms,” predicts Godden.

Needless to say, this would be very bad for London hedge fund jobs. It doesn’t help that the EU’s recommendation on remuneration will also apply if the legislation is passed: this would increase the pressure on funds to defer bonuses over a three to five year period.