Tougher tax and regulatory requirements being proposed for U.S hedge funds may not cause a stampede to other jurisdictions after all.
As a recent Fortune online article points out, proposed European regulations are even stricter, making it more difficult and costlier for foreign funds to do business in Europe. Shuffling off to Singapore or Hong Kong, where tax rates and regulations are more lax, may only be attractive to newer or start-up funds.
A large-scale exodus of U.S. hedge funds is unlikely, according to industry experts. In fact, some of the larger hedge funds may actually benefit from the financial overhaul bill.
That’s because the new rules would emerge in tandem with major new restrictions on banks. Depending on the final details, hedge funds may be the overall winners. Hedge funds could benefit from a brain drain from banks if the government restricts the banks’ proprietary trading. Plus, hedge funds may pick up business that that banks lose if they have to shed their derivatives-trading divisions.
Many of the big hedge funds have already modernized their derivatives trading business. So increased transparency and reporting won’t be an issue. Many funds also registered with the SEC in 2006, when they were briefly required to do so. So that won’t be an issue either, and could even be a marketing tool, reassuring potential investors of the stability of the firm.
New regulatory pressures may simple force a wave of consolidation in the industry. Larger funds may merge or absorb smaller ones. With new funds opting to set up shop in Asian tax havens.
You may also be interested in our article on the Top Hedge Fund Cities
What’s your opinion? Do you see hedge fund jobs remaining stable in the greater New York-Connecticut region? Growing? Shrinking? Add your comments below.