Thursday, 3 March 2011

London Losing its Allure as a Trading Centre if Guggenheim Partners' Decision Making is Indicative

The politicians don't believe it when the British Bankers Association or AIMA say that tax-paying talent will leave the country, or when supply-siders say that the percentage tax take is hurting growth from entrepreneurialism. But there is evidence. UK based firms (including large cap names) have moved their tax domicile to Switzerland. Hedge fund firms founded and grown in London have opened offices elsewhere in Europe to avoid increasingly high personal tax, and to take some corporate revenue out of the UK. Several high profile leaders of hedge fund firms have left London. 

These are examples of indiginous tax paying people and entities moving outside the scope of the UK tax authorities, but there are also decisions being made not to come into the UK tax environment. London is the long-standing hub for global financial activity in the European time zone. There is no doubting London's historic position and ranking. Their is a complete range of markets in the UK's capital from capital markets to insurance and shipping to commodities and foreign exchange. So the talent pool is broad and deep, and the service support infrastructure is excellent for any sector. It is possible to find lawyers and outsourced I.T. firms and back office capability across the spectrum of tasks in London. London is expensive, particularly for real estate, and the physical infrastructure is strained, but it mostly works and everything necessary to start a business is readily available. 

The positive factors for London may not be enough any more. Guggenheim Partners LLC is a privately held global financial services firm with AUM of $85bn and offices in nine countries. It is setting up a proprietary trading platform to take advantage of the decline in bank trading with proprietary capital. Outside the United States Guggenheim Partners has offices in Dubai, Dublin, Geneva, Hong Kong, London, Mumbai and Singapore. The new venture, Guggenheim Global Trading (GGT), will have an Asian office (place to be decided), and it was a shock to read today that the European office for GGT will be in Geneva.  

These kind of decisions, to not come to London rather than actively leave the UK tax and regulatory burdens behind, are not headline grabbing and not something that can be taken as positive proof of the case. But there is collateral evidence that London is losing its allure as a trading centre.

Addition of 12th April 2012
It is unlikely to be related to recent tax changes in the UK Budget, but another hedge fund manager has left London for a lower tax regime. Changes on the FSA register show that the senior investment and operations staff of Tyrus Capital are no longer under the UK regulator's jurisdiction. Tyrus Capital was set up by Tony Chedraoui, the well-regarded former head of Deephaven's European investments, and is one of Europe's top 50 hedge fund firms by size.  Reports suggest that the management of the $2.7bn of assets run on an event-driven basis has moved to Monaco. 

Hedge Fund Tax Drain (June 2010)
Mixed Messages on Health of HF Business (Nov 2010)

1 comment:

  1. Simon,

    Thank you for the opportunity to comment on your blog.

    I'm sure collectively IMS will have a lot to say on the subject. In terms of prop traders, Stephen and I have certainly seen many spin outs of the UK banks in the last 12 to 18 months and therefore there has been a lot of interest in FSA/SEC registration and traders coming to terms with the prospect of running a business.

    With respect hedge fund managers moving out of the UK, many of our clients considered it a few years ago and many if not all concluded that London was still the place to be due to commerical and personal reasons. Also, I have spoke to a couple of new clients recently who have approached us wanting to set up in London and apply for FSA auhtorisation, after realising that their Geneva offices didn't quite offer the talent or financial centre that London could offer. So we shall see if that continues.

    Kind regards

    Sophie Centeno
    The IMS Group

    3 Tenterden Street, Mayfair, London, W1S 1TD Office: +44 20 7408 2448
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