Much of Europe's private equity industry has gained an exemption from proposed new European Union legislation, according to a draft directive published today, but its hedge fund managers face swingeing rules including minimum capital requirements.

The details on the directive published by the European Commission says it will not apply to alternative investment fund managers whose investors have agreed to keep their money in place for at least five years and use no leverage - a description that fits private equity firms - unless their assets under management amount to more than €500m ($663m). Small and medium-sized private equity firms will therefore not be subject to the proposed new rules.