Sept. 21 (Bloomberg) -- The European Union’s proposed rules for hedge funds and private equity firms may cost as much as 1.9 billion euros ($2.8 billion) in the first year and 985 million euros annually thereafter, an industry survey says.

The Directive on Alternative Investment Fund Managers would regulate and place capital requirements on any funds managing more than 100 million euros. The proposed measure would boost compliance costs by about a third, according to the survey of 121 hedge-fund managers and 41 private-equity managers managing a combined $550 billion, according to Open Europe, a London- based research organization.

London, home to at least 80 percent of Europe’s estimated $400 billion in hedge-fund assets and about 60 percent of Europe’s private-equity firms, may suffer as funds decide that leaving is easier than complying with new regulations, the survey authors said.

“Thousands of jobs and millions of pounds in tax revenues could be at stake,” according to a report by Mats Persson, research director at Open Europe. “There would be little incentive for fund managers to remain in the EU at all.”

The survey showed 2 percent of investors in the funds support the proposal, while 46 percent oppose it.

Britain’s Financial Services Authority last week organized a one-day conference in London about the costs and consequences of the directive, which Paul Myners, the U.K. treasury minister called “flawed.”

Poul Nyrup Rasmussen, the Danish former prime minister whose Socialist Party president introduced the legislation, said this month that the proposal may need “tightening.”

The survey was conducted among members of the Alternative Investment Management Association and British Private Equity and Venture Capital Association.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Last Updated: September 20, 2009 20:15 EDT