London retains lure for hedge funds as banks demur

Date: Thursday, April 14, 2011
Author: Laurence Fletcher, Reuters

* Executives say London presence key in Europe

* Cite lifestyle, business networks

* Some managers move back to London from continental Europe

LONDON, April 13 (Reuters) - While banks may be thinking of moving their headquarters from the UK to dodge new regulations, London's status as the centre of Europe's hedge fund industry looks secure.

The UK capital, second only to New York as a hedge fund hub, is even luring back some managers who decamped to Switzerland to escape heavier taxes and regulation.

Executives cite London's proximity to investors and service providers and the lifestyle it offers. "London is still the centre of the hedge fund universe in Europe," said Andrew Rubio, chief executive of Throgmorton, which provides back-office services for hedge funds including Brevan Howard, one of Europe's biggest hedge fund firms.

"It's where the distribution channels and the networks are ... If you want to be successful, you have to have a presence in the UK."

Some banks are considering moving their headquarters from the UK if the government brings in tough rules to try and avert another banking crisis.

Barclays (BARC.L) is among banks that could move headquarters from London, according to people familiar with the matter. [ID:nLDE72T1GA]

And HSBC (HSBA.L) has said that if the Independent Commission on Banking, which published its interim report on Monday, makes banks separately capitalise their investment banking business, British banks would "take decisions to protect their economic activity". [ID:nLDE7371AX]

In contrast, some fund managers who moved to rival centres such as Switzerland to avoid the UK's 50 percent tax rate on high earners or European regulations are moving back to London, which is home to 63 firms running $1 billion or more, according to Hedge Fund Intelligence.

The next biggest European centres, Paris and Stockholm, have only three such firms each.

LONDON LIFESTYLE

Whereas a bank's domicile is decided by executives who answer to shareholders keen on cost savings, hedge funds tend to be much smaller and run by one or two key individuals who can take factors such as family and lifestyle into account.

One hedge fund executive who asked not to be named said the firm had "just hired a British guy who was based in Switzerland but who'd got fed up and wanted to come back to London".

"I've heard some people who've moved there have become disenchanted and not enjoyed the lifestyle," said Odi Lahav, vice president at Moody's alternative investment group. "London as a city has a lot to offer. A lot of the comments I've heard from people who were considering moving to Switzerland were that, 'Of course there's a tax driver, but the reality is that you can move there and have more money, but what do you do with the money?'"

Chris Barrow, HSBC's global head of sales for prime services, said Swiss-based firms can find it hard to hire locally and can struggle to persuade UK-based managers to move.

"From most of the people we speak to, the talent wants to be in London."

Throgmorton's Rubio points to the "Harvey Nicks effect" -- referring to upmarket London department store Harvey Nichols, a magnet for big spenders -- and said he had seen one manager relocate to Barcelona, only to move back to London.

Frederic Denjoy, a former trader in Brevan Howard's Geneva office who recently left the firm, has set up his new boutique Denjoy Capital Partners in London's West End. Nevertheless, Brevan Howard, which runs $32.6 billion in assets, houses 46 staff in Switzerland, including senior executives Alan Howard and Nagi Kawkabani. Another big name in the industry, Bluecrest, which manages more than $25 billion, also has a Swiss office.

However, Throgmorton's Rubio says the industry is far away from the tipping point that would persuade the majority of managers to quit the UK.

"It will take a seismic shift to get them to up sticks."