Czech Republic wants a piece of the rising hedge fund industry, after a new EU regulation named AIFMD (Alternative Investment Fund Manager Directive)  takes effect in July. Previously the highest number of hedge funds, after the U.S., are domiciled in Luxembourg, a tiny EU state. But the new EU rules, which are meant to enforce greater regulation and control in the money-managing industry, will require outside hedge funds to be domiciled in any one of the European Union members.

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Not only do the major EU players like Germany and the UK want a piece of this trillion dollar industry, but smaller countries are equally enthusiastic in playing host to hedge fund operations. Czech’s Deputy Finance Minister Radek Urban said in an interview with Bloomberg that the industry has room to include other players. He also said that he has chalked out a legislation that will facilitate the country in making a standing in the hedge fund industry. Both Luxembourg and Ireland already have a high number of domiciled funds and when more funds want to get registered in the EU, these countries could find it difficult to accommodate them.

Other countries which have so far been influenced by the change in EU regulations is Switzerland. Although not a member state, Swiss authorities recently made their laws compliant to EU legislation, which brings greater transparency and scrutiny to hedge fund operations. According to Preqin’s Hedge Fund research, Swiss funds account for only 13 percent of the total funds that are domiciled in Switzerland – the major portion of the registered funds originate from Cayman Islands and Luxembourg.

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Preqin’s research also noted that of all hedge fund launches in Q1, only 12 percent originated from Europe. The report also commented that one reason for this marked decline in new European launches is the forthcoming AIFMD, and once it implements more funds will be launching from EU.

Urban said that Czech has the best credit rating among the eurozone’s post communist members. The banking sector of the country is also well capitalized, where deposits exceed loans. Sovereign bond yields in Czech are also lucrative at record low numbers. Czech’s existing investment funds industry manages $11.8 billion in assets. In praise of Czech’s economic environment,  Jana Michalikova said, “Stability is crucial for this type of business, and the cost of ancillary services is much lower here than in London or Luxembourg.”  Michalikova, head of  Prague-based Capital Market Association (AKAT), said.  “We have a fairly well-functioning economy, rising credit ratings, a stable legal environment, a very strong banking sector, and the Czech National Bank is a very well respected regulator.”