Pension funds join battle over EU hedge fund rules

* NAPF fears impact on affordability of pensions

* Hermes vows to make voice heard as it faces hike in costs

* Hedge fund body estimates 25 bln euro hit on pension funds

By Joel Dimmock

LONDON, Aug 4 (Reuters) - British pension funds have begun exerting pressure to change proposed European Union rules that would impose new regulations on the hedge fund and alternative investment sector.

The National Association of Pension Funds (NAPF) and a director at Hermes, manager of Britain's largest corporate scheme, told Reuters the rules could damage investment choice and hit returns, affecting the affordability of pensions.

Their comments came as the Alternative Investment Management Association (AIMA) focused its lobbying efforts on the effect the European Union rules might have on retirement savings.

The draft legislation affects hedge funds, private equity funds and real estate products and demands that funds register and disclose information to regulators such as levels of leverage. The directive, announced in April, also restricts the ability of non-EU managers to sell funds in Europe.