A study requested by the European Commission recommended that the European Union allow only large investors to put money directly into hedge funds to avoid the need to introduce specific regulation for them.
There is no specific EU-level regulation of hedge funds, which now account for about $1.2 trillion under management world-wide, including $325 billion in Europe, according to the study by an ad hoc group of asset management firms and other industry experts.
"The hedge fund business is maturing in a way that does not give rise to any need for additional specific or targeted legislation of hedge fund participants or investment strategies at a European level," the study said.
The study recommended a minimum threshold of 50,000 euros ($64,060) for investing in hedge funds. That would prevent small investors from having direct access to funds that may have unsuitably high levels of risk.
Meanwhile, countries in the EU should remove barriers to making hedge funds available to a wider range of institutional investors, the study said.
The Commission said on recently that the study had made a strong case to avoid specific EU legislation but that any moves to serve a broader range of investors would "trigger close regulatory engagement".
The Commission wants to make EU fund industry rules more efficient for investors so they can put their money in a wider range of assets and countries.
This would offer more choice to help solve the bloc's underfunded pensions and make the sector more competitive.
Hedge funds can use high-risk strategies including derivatives, borrowing to make bigger investments and short selling, or selling a borrowed security on the expectation of buying it back cheaper later.
The study said the light-touch regulatory approach in member states was working well and that additional rules would probably fail, do little to improve investor protection and drive more business offshore.