BRUSSELS, Belgium

European Union countries called off yesterday’s talks on new rules to oversee hedge funds, saying they needed more time to get “isolated” Britain on board a compromise deal.

Spanish Finance Minister Elena Salgado said her country, which currently leads EU talks, would try to broker a deal with “as many concessions as possible” to get the full agreement of all 27 finance ministers in May or June.

However, diplomats said earlier that Britain — Europe’s center for the hedge fund and private equity industry — was “very isolated” and will likely have to bow to other nations, led by France, which want to toughen supervision and transparency requirements for funds based outside the 27-nation bloc.

The delay avoids an embarrassing defeat for Britain ahead of a general election — expected in May. EU governments usually try first to get a compromise before moving to overrule one country, preferring to water down rules to suit all of them.

The new law, when completed, could block foreign funds from Europe if they don’t face tight oversight at home. This is aimed at funds based in tax havens like the Cayman Islands where supervisors might not be checking on risks they are taking on.

Britain’s treasury chief Alistair Darling said Britain would try to seek more concessions in coming weeks because the current draft put forward by Spain also risked shutting US funds out of the European market.

More than 70 per cent of alternative investment funds — which also include private equity funds — are based in Britain.

“If you take an American hedge fund managed in London, under the draft we had in front of us today it would have been subject to increased requirements,” Darling told reporters. “That would not then automatically mean it could go and operate in other European countries.”

The hedge fund industry’s Alternative Investment Management Association, or AIMA, was relieved at the delay, saying there were still significant international and European concerns about the new rules.

“It is better to get the directive right than to rush it through and risk botching it,” said AIMA chief executive Andrew Baker.

US Treasury Secretary Timothy Geithner wrote to EU officials last week, warning them that the draft rules could also block American funds from selling to European investors.

That irked EU officials. Michel Barnier, the EU commissioner for financial services, said he was “not amenable at all to pressure” and would not take instructions “from Paris or London and certainly not from Washington.”

“We need to work together without there being any pressure on either side, that’s my state of mind in dealing with the Americans,” he said.

EU regulators want fund managers to register in Europe and supply more information on their trades and risk exposure to prove they don’t pose a threat to the financial system.

They would have to disclose their overall trading strategy, their risk management system and explain how they value and store assets — and be obliged to hold a minimum level of capital to cover potential losses.