The plans of the European Union to crack down on hedge funds as well as private equity firms may cost the industries more than €3 billions.

As per a report conducted by Charles River Associates for the Financial Services Authority, the EU is planning to compel fund managers to sign up to a pricey registration and submission of data and to stick to caps on leverage.

All that could hit the fund managers with annual costs of about €3.2 billion.

Hedge funds will have to shoulder €1.4 billion as additional costs to abide by the new directive.

The private equity firms will face one-off costs of up to €756 million plus they will have to bear the largest ongoing costs, which will total around €248 million per year.

Dan Waters, chief of asset management at the FSA, said, "We see those one-off costs - they are very significant and we do not think they can be justified."

The new directive will prevent the pension funds from investing in 40 per cent of all hedge funds in addition to 35 per cent of all private equity firms.

Charles River added that the new directive will drag funds' returns down by 0.05 per cent per year.