By Huw Jones
LONDON, May 20 (Reuters) - The European Union will propose targeted changes later this year to clarify rules on when asset managers outside the bloc can choose assets for investment funds in the EU, a senior EU official said on Thursday.
The EU's executive European Commission is reviewing the bloc's directive -- or rules -- for managers of alternative investment funds, which include hedge, private equity and real estate funds.
"The directive is relatively new and has generally worked well," EU financial services chief Mairead McGuinness told an Irish Funds event.
"We aim to propose a legislative amendment towards the end of the year, and any changes will be targeted and proportionate to improve clarity and fill in any regulatory gaps," she said.
The global funds industry is watching how far the EU wants to toughen up rules that cover "delegation" or where funds based in the EU are run by asset managers outside the bloc.
Delegation is a longstanding international practice and the EU's market watchdog ESMA rattled nerves last August when it said its guidance for toughening up delegation ahead of Brexit should be hardwired into EU fund rules.
The guidance ensures that funds based in the EU have enough "substance" or sufficient number of senior management even if assets for portfolios are being selected by managers outside the bloc.
UK-based managers manage portfolios of many funds based in Dublin and Luxembourg and delegation increased substantially after full Brexit on Dec. 31.
"We understand that delegation helps efficient management of portfolios and sourcing the right expertise. Here we know some stakeholders want us to clarify the rules," McGuinness said.
She also wants to implement recommendations from the European Central Bank's systemic risk board on giving "tools" to asset managers to ensure they have enough liquidity in open ended funds for dealing with redemptions in rocky markets.
ESMA has said it would be beneficial to hardwire its guidance on delegation into rules for the far bigger mutual funds sector, though McGuinness gave no indication she would adopt this suggestion.
(Reporting by Huw Jones, Editing by William Maclean)