Germany's Finance Ministry has proposed limiting the distribution of hedge funds only to professional investors to prevent retail buyers being damaged by the activities of the increasingly marginalised industry in Europe.

The proposal, in a draft bill proposed so that Germany might comply with EU-wide rules on regulating alternative investments by mid-2013, was made "to ensure a coherent treatment in the EU of the risks [of alternative investment funds] and their consequences for investors and markets".

Finance ministry spokesman Johannes Blankenheim told a news conference today: "The stated aim of this law is to provide protection to private investors against especially risky investments."

Private investors could still access hedge funds via funds of funds, but even these will have to include significiant warnings for investors under the proposals, which will be submitted to Angela Merkel's ruling cabinet.

All EU governments are in the process of applying the contentious Alternative Investment Fund Management Directive to their local setting.

Germany's attempt, revealed on the Finance Ministry's website, gives insight into how a market historically inimical to hedge funds, is going about it.

As per the AIFM plans, hedge fund providers selling to professionals will have to include prominently extensive information about their fund and business.