Fund Manager Doesn't Hedge His Bets on Tories

As the right-leaning British government prepares to impose some of the deepest spending cuts in a generation, it is doing so with the full-throated support of the London financial elite.

No surprise there. But the big question is whether the finance industry’s political donors, who have kicked in about £1 million, or $1.6 million, since the Conservative-Liberal Democrat alliance took office in May, will continue to do so if the new government does not come through with tax cuts and keeps the Labour-imposed regulatory shackles on.

To listen to one of the biggest backers of the Conservative Party, an unusual up-from-his-bootstraps hedge fund manager named Michael Hintze, the answer is yes — for the time being.

The founder and chairman of CQS Capital Management, Mr. Hintze has gone a long way toward keeping the party solvent, with not only £1.3 million in recent donations to the Tories but also a £2.5 million loan in 2001. Underpinning that support is his belief that the incessant spending of the previous Labour government created a debt burden that will plague Britain for decades to come unless it is immediately addressed.

“I am worried that people in government just don’t know what they are doing when they borrow 100 percent of G.D.P,” or gross domestic product, Mr. Hintze said in the elegant boardroom at his office overlooking Buckingham Palace. “Do they understand that it will take 20 years to pay it off?”

Britain has not reached that level of debt yet, but even so, it may seem a bit rich for a hedge fund magnate whose immense wealth flows from a business model based on borrowing far beyond his own assets to be lecturing governments about excessive debt.

Not to mention that Mr. Hintze and his hedge fund peers who have lined up behind the government’s austerity campaign enjoyed their most lucrative years ever under the previous Labour government’s light-touch regulation and free-spending ways.

Mr. Hintze said he was prepared to sacrifice, if that was the price for getting the British debt under control. But, he said, over the longer term the newly raised 50 percent top tax rate and the enhanced regulatory system may push many in the industry to leave London for Switzerland, Singapore or Hong Kong.

“Remember, hedge funds are managing money for many offshore investors — it is an export industry,” he said. “This could be done from anywhere.”

Mr. Hintze said he was staying put and, with a few notable exceptions, there has been little migration of hedge funds from London to Geneva or other lower-tax havens around the world.

While Mr. Hintze is quick to insist that his money and access do not grant him any outsize policy influence, critics say that Mr. Hintze and the hedge fund industry are betting that the Conservative-led government will ultimately lower the top tax rate and do what it can to keep the European regulatory yoke from Brussels from becoming too restrictive.

“Money talks, does it not?” said George G. Blakey, a former stock broker in the City, London’s financial district, and the author of “A History of the London Stock Market: 1945-2009.” “They are pulling strings, aren’t they, given how important the regulatory side is to them.”

Mr. Hintze’s background stands out in London’s high-finance circles. His mother immigrated from Russia to Australia — via China, where he was born — where she worked as a secretary and raised Mr. Hintze on her own. Money was so tight that they could not afford a car, or the one thing that he most wanted as a child: a guitar.

“I have been rich and poor,” he said, echoing the old saying. “And I tell you, I would rather be rich.”

Soon enough, he would be.

After a tour in the Australian Army, Mr. Hintze sold his first car, took out a loan and went to Harvard Business School. There, he not only met his wife but also was introduced to the wonders of securitizing different forms of debt at a seminar led by John J. Mack, the current chairman of Morgan Stanley, who was then a young bond salesman.

With the goal of applying his smarts to Wall Street’s booming debt markets, Mr. Hintze got a job at Salomon Brothers in New York. He moved soon afterward to Goldman Sachs, and by the late 1980s he had become one of Goldman’s most profitable traders in convertible bonds.

After a move to Credit Suisse, he decided to form a hedge fund in 1999, taking $200 million in seed money from his last employer as well as $4 million from family and friends and forming CQS.