Britain’s new 50 percent tax on investment banking bonuses over 25,000 pounds may drive talented traders into the arms of hedge funds, reports Reuters.
Politicians in Britain, and to a lesser extent in France, Germany and the U.S., are riding a wave of public outrage against investment banks doling out huge bonuses. Especially since many of these banks were propped up by taxpayer money during the financial crisis.
But hedge funds did not receive government support, and that fact may allow them to avoid similar restrictions on employee compensation. If bank bonus levels are restricted in Britain or elsewhere, it could give hedge funds a competitive edge in hiring for trading positions. Already firms such as GLC Partners, Greylock Capital and Duet Group have reportedly recruited former bankers. In 2009, several former Societe Generale bankers left to form their own hedge fund, Nexar Capital.
One way for banks to fight back would be to continue to pay their top people big bonuses and absorb the extra cost of the proposed taxes. It’s a strategy some banks are reportedly considering.