Thought for London – November 2009 

 London's Blooming Hedge Funds

Hedge funds come here in their droves, as after New York London is the second largest centre for fund managers, controlling 18% of global assets. When it comes to Europe there is really no competition - at the end of 2008, four-fifths of European assets (around $300bn) were based here and if we include US funds managed in Europe it accounts for more than 90%.

So with such clear market dominance, why has there been so much in the media around Hedge Funds leaving London - BlueCrest being the most recent and high-profile example? For many the reason is London's perceived lack of competitiveness as a tax domicile.

Some Hedge Fund managers are attracted to Switzerland where they can sometimes negotiate a lower personal tax rate. Some too are concerned about draft EU proposals on alternative investments - a potential threat which prompted the Mayor of London's recent trip to Brussels.

Firstly, as with so many stories about companies 'leaving London', the truth differs from the spin. BlueCrest is in fact retaining 250 staff in London and moving only 50 abroad. Secondly, London is continuing to attract new hedge funds; in fact the largest new fund to be set up globally this year was in London. That said, it is still a matter of concern that London’s critical mass is being eroded.

Whilst it seems certain that the 50% tax bracket will be with us for some time, there are signs that the proposed EU legislation may be revised to contain less extreme measures. Hedge Funds can be seen as the financiers of entrepreneurism, and nowhere are dynamic young companies more prevalent or innovation more embedded than in London.

I am often told by companies coming to London that they are doing so as it simply has the best availability of skills, industry critical mass, global connectivity, innovation, market access and pools of capital.

London remains a crucible for growth and hedge funds are an integral component of that; so whilst Think London is working with our partners to stem any divestment, we are confident that London will continue to attract both hedge funds and dynamic companies in which they can invest.

Michael Charlton
Chief Executive, Think London