Posts tagged as:


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.

{ Comments on this entry are closed }

Throughout much of the Western world, the hedge fund industry has been targeted by governments that have been active in imposing additional regulations across the financial industry. After gaining a reputation as a source of some of the biggest bets and most reckless risk taking in the lead up to the financial crisis, hedge funds have borne some of the worst of these new regulatory measures. Fund managers are adapting by shifting operations offshore or to locations with a more friendly regulatory regime. Unfortunately for governments, this is actually leading to less real oversight of the types of activity they sought to control.

Swiss Hedge Fund Industry Seeks Out Friendlier Jurisdictions

After being well regarded amongst the hedge fund industry for its lenient investment regulation systems, Swiss regulators are now moving to increase oversight of hedge funds along with other alternative investment classes. In order to continue to market to EU investors, Switzerland has been forced to amend regulations to mirror the EU’s “Alternative Investment Fund Manager’s Directive,” which involves substantially increased compliance and reporting obligations. According to Bloomberg, many Switzerland-based funds are looking at moving their operations to Liechtenstein in order to gain this EU investor access earlier, without the additional oversight from the Swiss Financial Market Supervisory Authority, which is perceived to be stricter than in the neighbouring principality. Swiss funds will not be permitted to obtain a “passport” to market to EU investors until 2015 under the existing European Union rules, while relocation to Liechtenstein will provide immediate access. The regulatory changes also apply to private equity and real estate funds that are currently based in Switzerland.

New Zealand Positioning Itself to Take Advantage of New Regulation

Certain countries have welcomed the benefits of having a strong financial sector and are seizing upon the opportunity to implement regulatory regimes friendly to the hedge fund industry. New Zealand is one country that may not have come to mind in the past when thinking of financial hubs, but it is actively reforming legislation to attract hedge funds and other alternative investment managers. The island nation will be adopting oversight rules that bring it into compliance with the EU guidelines while attempting to also make important concessions to attract funds, allowing Asia-Pacific hedge funds to access European capital through a reliable and advantageous regulatory regime. One critical proposal is elimination of all taxation of fund returns from investments not based in New Zealand. This will allow funds to flow returns back to Europe and other locations from investments across the region without incremental tax being imposed. This sort of friendly approach to the hedge fund industry could result in New Zealand becoming a bigger player in financial activity in the Asia-Pacific region and is further evidence that a collaborative, open-minded approach can yield positive impacts for both countries and funds.

Additional Regulation may actually Result in Less Oversight

In many countries, we’ve seen additional regulation and compliance requirements force firms offshore or to countries with softer rules or less enforcement. As a result, in some cases there has been a weakening of the actual oversight of the risk-taking activity that countries are trying to reduce or at least monitor. While many countries have pushed funds out through this kind of heavy-handed approach, others such as New Zealand are actively attempting to attract the hedge fund industry through a collaborative approach to regulation. Going forward, expect to see more countries take advantage of the burdensome rules being imposed in traditional jurisdictions by opening up their own financial markets to alternative investment fund managers.

{ Comments on this entry are closed }

Real Time Web Analytics