Hedge Funds Still Favour London

Date: Friday, February 19, 2010
Author: Sinead Cruise, New York Times

Heavy tax demands on London's under-fire hedge fund industry are unlikely to spark an exodus of operators to rival financial hubs such as Dublin or Geneva, a survey by property advisor Cushman & Wakefield showed.

The study into the impact of taxation on corporate locations showed only one in 10 UK-based companies considered national tax policy or government incentives as an "absolutely essential" factor when choosing a location for their businesses.

Instead, financial occupiers like hedge funds prize ease of international travel, good internal infrastructure and access to a diverse labour market over fiscal policy, putting London ahead of traditional rival Geneva on all counts, the report showed.

"Taxation is only one part of the location decision, and London is successful as a business location because of it is an attractive place for people to work, it provides easy access to all corners of the globe, its infrastructure is improving and it still an easy place to do business in," said Elaine Rossall, an associate in Cushman's European research group.

There has been much speculation that London's hedge funds will relocate en mass to more tax-friendly destinations amid plans for a UK "super-tax" on thriving financial institutions and high net worth individuals.

This is reflected in the number of major corporates that have relocated from the UK in the last few years, largely because of domestic fiscal policy.

These include WPP <WPP.L> to Ireland, McDonald's <MCD.N> to Switzerland, Cisco <CSCO.O> to Belgium and Microsoft <MSFT.O> to Luxembourg.

London is home to 85 percent of Europe's hedge funds and it is claimed that 18 funds are currently contemplating relocating to overseas locations, principally Switzerland and New York, as the tax burden threatens to spiral out of control, Cushman said.

However, anecdotal evidence from Cushman's London West End office team suggests hedge funds and private equity companies are still seeking space in the city's prime office market, accounting for about 10 percent of take-up.

"Hedge funds remain active and there's little evidence that plans for expansion or new office space have been put on hold since the government's planned tax hike to 50 percent," David Hume, head of tenant representation in Cushman's London West End team said.