As The E.U. Cracks Down, Hedge Fund Managers Discover Familiar Haven: Switzerland
The EU is tightening regulations on hedge fund managers, who have begun looking for friendlier places to do business. More and more are turning to a new refuge in the old financial-friendly confines of Switzerland.
ZURICH - For Europe's hedge fund managers, the party may well be over. Now that the EU has signed legislation aimed at regulating these high-return financial managers, they can no longer do as they please. We've seen attempts at regulation before. This time, however, things are a bit different. Previous regulations only affected legal personnel and hedge fund firms. Now it's the managers themselves who are to be more strictly controlled, both in terms of their business practices and their compensation.
In Switzerland, this may mean the coming of a new golden age. Whereas hedge fund managers pay 50% taxes in London, they pay only 40% in Geneva. On top of this, regulatory rules are currently being tightened even further in the UK. "Capital is mobile, so are managers," says Austrian Investor and stock market guru Mike Lielacher. "Many hedge fund managers are spontaneously moving to Switzerland in order to escape the higher British taxes and stricter rules."
Man Investments spokesman Marc Duckeck adds: "Switzerland is an attractive location for hedge funds, especially because many investors still have their headquarters here. Between Zurich and Geneva, the country offers asset management firms one of the densest networks of investors and private banks worldwide. Add to that the relatively low tax rate, and it becomes a very interesting place for people to live and work."
Switzerland can no longer avoid international scrutiny about its role as a financial refuge. The country is caught in a crossfire of international criticism for its alleged facilitation of tax evasion, and will therefore not take any risks. FINMA, Switzerland's financial market authority (Finma), is formulating new rules for hedge funds that are intended to keep them on a tight leash. These provisions are intended to make sure that "Switzerland does not attract suppliers simply because they may no longer work in other countries." The rules will also allow Swiss suppliers to continue to offer their services within the EU area.
According to Hato Schmeiser, professor and risk expert at the University of St. Gallen, the regulations in both the EU and in Switzerland are long overdue for an overhaul. Hedge funds are spinning out of control, he says. "Some managers have earned so much that they've acquired a gut feeling that they can't let go. They can't be the last in the food chain. To anyone with common sense, this is scandalous."
According to Hedge Fund Research, the head of Appaloosa Management David Tepper cleared the highest hedge-fund salary ever in 2009: a sum of $4 billion. Investor George Soros came in second place with an income of 3.3 billion dollars. Schmeiser claims that politics are to blame for these developments, which have allowed for tax havens and a lack of rules guiding hedge funds. Despite new Finma regulations in Switzerland, which will also apply to bonuses for hedge fund managers, Schmeiser hopes for continued self-regulation. Existing rules still allow for too many workarounds between countries.
"The strongest migration of hedge fund managers is currently to Singapore and Hong Kong," says stock market guru Lielacher, a trend confirmed by the SFA.
In absolute terms, however, most hedge fund capital is still centered in the United States. Around 78% of hedge fund firms reside in New York and Chicago. Roughly 12% are in London. The rest are in Switzerland, Singapore and Hong Kong. In total, global hedge fund assets amount to $2 trillion, of which 1.58 trillion are in the United States, 240 billion in the UK and a little less than 180 billion in Switzerland. So while Switzerland may be a paradise for hedge-fund managers, it won't be taking over the top spot any time soon.
Read the original story in German
Photo - Hotel de la Paix Geneve