Wednesday, 30 June 2010

Hedge fund tax drain from UK - it was not just an empty threat

From today's "CityAM" newspaper:

"ALAN Howard, the hedge fund entrepreneur and Conservative Party donor, has quit the country to live and work in Switzerland. The co-founder of Brevan Howard Asset Management, one of Europe’s largest hedge funds, joins two other fund managers in the company’s Geneva office as part of a bigger exodus out of the City.

The firm acquired offices in Switzerland with capacity for 40 employees in February. It has said previously it has no plans to move its entire London operations elsewhere. The hedge fund’s listed company BH Macro said in a statement to the stock exchange that Howard “continues in his role as the principal risk taker” for company investments.

Howard has a personal fortune of £875m, according to The Sunday Times, and already owns a home in Switzerland.

BlueCrest, another hedge fund, expects as many as 70 of its 350 staff to be based in Geneva by next year. Chief executive Michael Platt said in April: "The establishment of the Geneva office...will enhance the group's ability to recruit and retain the best talent in our industry.”"

It will not necessarily be possible to generalise from this example and say that the exodus of hedge fund managers from London willl become a major trend for several reasons. Just take Alan Howard to begin with.

He may or may not be worth £875m, but whatever his net worth it runs into hundreds of millions of pounds.  Howard has the largest stake in Europe's largest hedge fund group. So changes to the capital gains tax regime in the UK may have a significant impact on his retaining his existing wealth.

The number of managers generating as much wealth through income each tax year is very limited. So Alan Howard is atypical for the sheer size of his annual earnings. The Brevan Howard main man is also an extreme example in part because he has made money each year. Many managers have not had to pay much tax at all on earnings in 2008, as they received only management fees and not performance fees. Although the majority of managers are through their high water marks by now, most of them have not moved their NAVs significantly on from that break-even level for profits. So they have limited incentive to move now.

A third element to point out is that Alan Howard has the distinct advantage of having a house in  Switzerland, indicating a degree of comfort and familiarity with living in the country. These advantages will not be available and be felt by many other hedge fund managers.

Addition of 2nd August
Alan Howard is to be joined in Switzerland by a former colleague. Jean-Philippe Blochet was a fellow founder of Brevan Howard and now works for Moore Capital Management. Blochet is to move to the new Zurich office of Moore Capital where he will work alongside Kornelius Klobuchar, who has also relocated from London. According to Bloomberg the firm is expected to hire further staff, and to move additional London-based personnel.

Griffin Capital Management, which moved its main investment office to Gibraltar from London, opened an office in Zurich in May this year. 

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