London secure as top location for hedge funds in Europe

London based banks may be considering moving their headquarters overseas because of new regulations but the city’s status as the centre of Europe's hedge fund industry looks secure.

The UK capital, second only to New York as a hedge fund hub, is even luring back some managers who decamped to Switzerland to escape heavier taxes and regulation.

Executives cite London's proximity to investors and service providers and the lifestyle it offers as the main reasons. ‘London is still the centre of the hedge fund universe in Europe,’ said Andrew Rubio, chief executive of Throgmorton, which provides back office services for hedge funds including Brevan Howard, one of Europe's biggest hedge fund firms.

‘It's where the distribution channels and the networks are. If you want to be successful, you have to have a presence in the UK,’ he added.

Some banks are considering moving their headquarters from the UK if the government brings in tough rules to try and avert another banking crisis. Barclays is said to be among banks that could move headquarters from London, according to people familiar with the matter.

And HSBC has said that if the Independent Commission on Banking, which published its interim report on Monday, makes banks separately capitalise their investment banking business, British banks would take decisions to protect their economic activity.

In contrast, some fund managers who moved to rival centres such as Switzerland to avoid the UK's 50% tax rate on high earners or European regulations are moving back to London, which is home to 63 firms running £614 million or more, according to Hedge Fund Intelligence. The next biggest European centres, Paris and Stockholm, have only three such firms each.

Whereas a bank's domicile is decided by executives who answer to shareholders keen on cost savings, hedge funds tend to be much smaller and run by one or two key individuals who can take factors such as family and lifestyle into account.

One hedge fund executive who asked not to be named told Reuters that his firm had ‘just hired a British guy who was based in Switzerland but who'd got fed up and wanted to come back to London’.

Odi Lahav, vice president at Moody’s alternative investment group said that he heard that some people who've moved to Switzerland have become disenchanted and not enjoyed the lifestyle. ‘London as a city has a lot to offer,’ he added.

Chris Barrow, HSBC's global head of sales for prime services, said Swiss based firms can find it hard to hire locally and can struggle to persuade UK based managers to move. ‘From most of the people we speak to, the talent wants to be in London,’ he explained.