European Union (EU) commissioner for the internal market Charlie McCreevy will propose amendments to the Undertakings for the Collective Investment of Transferable Securities (Ucits) directive to allow fund managers to manage corporate and contractual funds in other member states.

The amendments would create an effective management company passport, which will cut down on unnecessary costs and the need to establish a fully functional management company in each state where the fund is based.

However, Mr McCreevy said there were insufficient grounds to undertake a fundamental reform of the directive to address issues such as the absence of a single market passport for non-harmonised segments of the funds industry, such as alternative investments, hedge funds and real estate funds.

The risks of such a move are "vastly underestimated" and different legislative solutions could entail unintended consequences which may outweigh any expected benefits, he warned.

Speaking at the Institute of European Affairs, Mr McCreevy said the Commission would undertake a detailed assessment of whether such funds should be available to retail investors on a cross-border basis and report on its findings in mid-2008.

Mr McCreevy also said it was a "myth" that European hedge funds were not regulated.

"Our analysis suggests that there are no regulatory gaps which call for EU-level intervention to regulate hedge funds above and beyond those measures that are already in place at national and European level," he said.

"There is a particular danger that hedge fund regulation could stifle the further development of a sector that has thrived on flexibility and a capacity to innovate."