Which 'Passport' does your Fund carry?

A recent headline suggests that 'Dublin finds hedge fund favour'. (Financial Times, 17 Jan 2011). This aroused my interest as Ireland at present is in the eye of the ongoing banking storm. Proposed EU legislation currently under (endless) discussion will require that alternative investment funds are domiciled inside an EU member state. This is supposed to make it safer for investors to entrust their savings to hedge funds, private equity and other 'alternative' investment funds. But one has to wonder what would really change if a fund is domiciled in one of the smaller EU member states like Ireland, Luxembourg - or even Latvia or Malta. Would investors really be as well protected as in a major country like Britain, France or Germany? What resources do smaller countries have devoted to the supervision of investment funds? Ireland is now home to around 650 hedge funds, tendency rising. What guarantee do investors have if there is a major accident such as the Madoff Scandal where billions of dollars have been squirrelled away by fraudsters under the eye of the regulators? Can investors expect to be made good by the authorities in these countries? Do the regulations even pretend to offer a money-back guarantee in case of fraud or are they just a way for politicians to score cheap points with the electorate and create even more pointless paperwork for businesses?