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. 

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