The growing pressure that the hedge fund industry is facing from regulators and the few individuals that have been willing to stand against the political tide were featured in a recent piece by the Financial News. Syed Kamall is a member of the European Parliament, representing London, one of the hedge fund centers of the world. While most politicians have demanded hedge funds face increased regulation, pay higher taxes or simply cease to exist, Kamall is advocating for the positives that hedge funds bring to both the local and broader economy.
While the hedge fund and private equity models have some recognition in the English speaking world, in much of continental Europe, they are known primarily as excessive risk takers that create systemic concerns for regulators and lawmakers alike. Leading European countries such as France and Germany have been unsuccessful in establishing innovative financial centers like London and New York and therefore seem eager to stem the risk taking where they see no local benefit. Unfortunately for hedge funds, few politicians are willing to put their own reputations on the line in order to defend the industry against the interests of the major continental powers.
London Remains the European Center for Alternative Investment
The hedge fund industry is particularly critical to London, who Kamall represents. Up to 80 percent of the hedge fund industry in Europe calls London home, while 60 percent of private equity firms operate out of the city. Clearly, London and the United Kingdom as a whole have the most to lose as a consequence of increasing regulation of the hedge fund industry. The recent Alternative Investment Fund Managers Directive is one such attempt at regulation that will have real impacts on individuals working in London’s hedge fund industry. The increased regulation, rules and limitations on leverage may create an uncompetitive environment for hedge funds to operate global from Europe, and they may shift their geographic locations to more favorable jurisdictions. Thousands of jobs may be at risk in London as a result, while potentially opening the door for new opportunities in foreign jurisdictions.
What Does This Mean for Job Seekers in the Hedge Fund Industry?
There is certainly a trend developing in many countries with established investment management industries towards increased regulation and oversight for alternative investment managers. Unfortunately for these countries, investment capital is now fairly mobile around the world. There are a number of countries that have taken an open minded approach, such as Singapore and Malaysia, and have cautiously welcomed the benefits that alternative investment managers bring to their economy. Not only have heavily regulated economies lost hedge fund jobs, but they also have less oversight of the industry than before heavy handed rules were imposed.
As a result, those looking for employment in the hedge fund industry need to cast a wide net geographically when searching for opportunities. Researching the regulatory regime of a country where a prospective job is located is important for understanding whether the position may be shipped offshore in light of changing regulation in the near future. While there will always be hedge funds operating in London or New York despite increased regulation, many of the most attractive opportunities in the future will likely be positioned overseas in jurisdictions that look favorably upon the industry.