By Neil Wilson
When Alan Howard, top partner at Brevan Howard Asset
Management-the biggest hedge fund group in Europe, with assets
of more than $31 billion-moved to Geneva, Switzerland, some
viewed that step as a significant blow to the prestige of
London as a financial center.
Howard's move, which was confirmed in late June, followed
news earlier this year that some leading traders at BlueCrest
Capital Management-with assets of more than $20 billion-had
also moved from London to Geneva. BlueCrest personnel who made
the switch included Mike Platt, who manages the BlueCrest
Capital International fund, and Leda Braga, manager of the
BlueTrend managed futures strategy.
These developments follow the move in 2007 by former GLG
partner Philippe Jabre to base his new business, Jabre Capital
Partners, in Geneva. With JabCap growing to assets of about $5
billion, a powerful array of talent is now trading from the
Swiss financial center.
This year's moves come at a time when the role of London-for
many years dominant in European hedge funds, with more than
three-quarters of the assets managed in the region-is under
threat. One cause of uncertainty is the European Union's
Alternative Investment Fund Managers directive, which is
threatening new regulatory burdens and costs for London, but
not necessarily for Geneva or other Swiss centers, since
Switzerland is not a member of the EU.
Another negative factor for London has been a higher
marginal rate of income tax in the UK, up from 40% to 50%.
Originally announced by the previous Labour government to take
effect this year, it is not being immediately revoked by the
new Conservative and Liberal coalition.
The rise in UK tax rates was one reason why suggestions that
Howard's move had been for "lifestyle reasons" were met with
skepticism in London. Against this, however, must be set the
fact that although federal income tax in Switzerland is only
11.5%, the highest personal tax rate in the canton of Geneva is
some 44%. Switzerland is not necessarily a low-tax
jurisdiction, though unlike the UK, it has no capital gains tax
on personal assets. Sources also suggest that tax incentive
deals are sometimes offered by Swiss cantons to attract
businesses to relocate there.
That said, there are various reasons why I do not believe
the bulk of the European industry will suddenly jump ship to
Geneva. For one thing, as locals in Geneva point out, it is a
relatively small place, lacking infrastructure in terms of
housing, schools and so on to accommodate a wholesale industry
flight from London.
Geneva has also suffered serious travails of its own during
the financial crisis. Traditionally, as a major private banking
center, Geneva's role in the industry has largely been through
funds of funds, many of which got mauled in the market meltdown
and, in some high-profile cases like Union Bancaire
Privée, through exposure to Bernard Madoff.
Post-crisis, some winners are emerging among the Geneva
private banks that avoided exposure to Madoff, such as Banque
Privée Edmond de Rothschild and Pictet & Cie. But as
one Geneva-based fund of funds manager put it to me last month,
"There has been an earthquake in the industry here-it's just
been in a very Swiss style, in a very quiet way."
With its fund-of-funds sector diminished, Geneva needs new
entrants from the single-manager side to bolster its position
as a financial center. But what sort of hedge funds is it
realistically going to attract?
When managers in London started muttering about moving to
Geneva a year or so ago, many expected the notion to appeal
mainly to new funds, for whom every dollar, pound, euro or
Swiss franc matters most. It was not expected to matter so much
to big established players, many of whom have already made
substantial fortunes over the years. As we have seen from
recent examples, however, tax savings of millions a year can be
But most of London's leading firms-and there were some 55
London firms in the Billion Dollar Club at the start of the
year-have not made the move yet.
Even the firms that have moved still have many more
personnel in London, and it does not seem likely that many of
the new generation will follow. Most new funds are not in a
position to negotiate tax incentive deals. Geneva also lacks
the huge pool of talent in the financial industry that London
London cannot afford to be complacent, because financial
professionals are highly mobile. But Geneva is not a cheap and
easy alternative. It may make a good home for some-as could
other centers such as Zurich or Zug-but definitely not for