European Hedge Funds Plan Singapore, Hong Kong Move on Rules

Date: Thursday, April 29, 2010
Author: Bloomberg

Hedge-fund managers in London and other European cities are considering offices in Hong Kong, Singapore or Switzerland as European regulators work on tougher rules, said a member of the industry’s largest trade group.

The managers could base part of their business in another city, without closing their European offices, said Christopher Fawcett, a member of the council of the London-based Alternative Investment Management Association.

Brevan Howard Asset Management LLP, Europe’s largest hedge- fund manager, has said it plans to move staff to Switzerland from London. London-based Algebris Investments LLP, a $1.5 billion global financial hedge-fund manager, plans to open an office in Singapore. Peregrine Cust, the chief investment officer of Prana Capital, relocated to Singapore from London, according to a note from the hedge fund to investors.

“People don’t want to start making huge changes on the basis of draft legislation,” London-based Fawcett said in an interview in Singapore. “But they have already taken measures, so they’re ready if the directive was enacted in a very unfriendly format.”

Europe is proposing limiting hedge funds’ borrowing, requiring registration of funds with more than 100 million euros ($134 million) under management and imposing limits on pay, under the Alternative Investment Fund Management Directive drafted a year ago. The European Parliament is scheduled to vote on the law later this year after delays.

BlueCrest Capital Management Ltd., the third-largest hedge- fund firm in Europe, may move as many as 50 people to Switzerland, Chief Financial Officer Andrew Dodd said in a January interview with Bloomberg.

Challenge

Fawcett is a senior partner of Fauchier Partners, a fund- of-hedge-funds firm with about $7.2 billion of assets.

The biggest challenge for the global hedge-fund industry would be “regulation, stroke, political intervention,” Fawcett, who co-founded Fauchier Partners in 1994, said. “That’s the area of risk this year for hedge funds: that management of hedge funds get distracted by having to deal with things like the EU directive.”

Hedge funds and private-equity firms are under the scrutiny of lawmakers worldwide, who say they are partly to blame for the worst financial crisis in a generation. The Group of 20 Nations agreed a year ago to tighter oversight of funds.

Singapore is proposing to license hedge funds that manage more than S$250 million ($183 million) under the most sweeping review of the city-state’s fund-management industry since it introduced incentives to lure alternative asset managers in 2002.

Attractive Tax Rates

Hong Kong and Singapore have “attractive” tax rates and have avoided “excessive regulation,” Fawcett said. “To the extent that their investment strategy allows it, the attractions of Hong Kong and Singapore have grown.”

Hong Kong and Singapore have Asia’s largest hedge-fund industries excluding assets managed by large global firms, according to a survey by the Singapore chapter of AIMA.

BlueCrest shifted its head office from London to Guernsey, an offshore tax haven, the Financial Times reported on April 9, citing a letter the firm sent to investors. The move was made on April 1, a few days before a 50 percent top rate of income tax came into force in the U.K., the newspaper said, adding that BlueCrest declined to comment.

The European proposals have prompted some hedge-fund managers to cancel or delay plans to set up in London, said Fawcett. Some U.S. managers are “repatriating to the U.S. part of their London-based operations,” he said.

‘Protectionist’

“I know a couple of cases where U.S.-based managers were going to set up a London operation and they decided not to because they didn’t want to get caught in the European net,” Fawcett said.

The U.K. is home to 80 percent of Europe’s hedge-fund management industry and 60 percent of private equity, Britain’s Financial Services Authority said in January. It’s also a center for non-EU funds looking to market in Europe.

The draft law would force funds based outside the European Union to comply with restrictions on bonuses and leverage if they want to market themselves to investors in the 27-nation bloc.

U.S. Treasury Secretary Timothy F. Geithner said earlier this month European policy makers shouldn’t block U.S. investment funds from their markets, after warning in March the rules would discriminate against U.S. funds.

“One of the most unappealing characteristics is it’s protectionist,” Fawcett said.

Fawcett said he expects non-EU funds to be able to market within the region on a country-by-country basis, depending on each regulator.