[ANCETPYNCTEXT]

London’s ‘Twin Pillars of Doom’ May Spark Hedge Fund Exodus

By Tom Cahill and John Rega

April 30 (Bloomberg) -- After helping to move 23 hedge funds to Switzerland from London in the past two years, David Butler describes the flow as a “steady trickle.” Now he’s bracing for a flood.

“Call it the twin pillars of doom,” said Butler, a founding partner at hedge fund consultancy Kinetic Partners LLP in London. “Put together the U.K. tax changes and what the ogres in France and Germany have created and you will see a mass migration.”

Butler said inquiries about relocations have gone up “by a factor of 10” since Britain pledged a new 50 percent rate for top earners on April 22. Many came from fund managers already mulling a move after the U.K. tinkered with tax rules for non- domiciled workers last year. They’re calling again after the European Union, backed by France and Germany, proposed yesterday to regulate buyout firms and hedge funds managing more than 100 million euros ($134 million.)

The EU is pushing for tighter regulation with an “all encompassing” approach after markets fell in 2008. The hedge fund regulatory threshold was lowered “at the last minute” at the urging of Socialists in the European Parliament.

“The directive has been allowed to become a politically motivated attack on the U.K.’s successful investment management industry,” said Richard Perry, a partner in the financial services practice at Simmons & Simmons, a law firm in London. The measure may drive many fund management businesses outside Europe, he said. “This could inhibit the growth of London’s hedge fund industry significantly.”

Leaving London

London, home to at least 80 percent of Europe’s estimated $400 billion in hedge fund assets and about 60 percent of Europe’s private equity firms, may suffer as funds decide leaving is easier than complying with new regulations.

“There is a profound disincentive to base businesses in Britain that could as easily be run from Zurich, Dubai or for that matter New York,” Simon Walker, chief executive officer of the BVCA, the U.K. buyout industry’s lobby group, told reporters in London on April 29. “This is one of the biggest problems: it’s a disincentive to run businesses out of London.”

Geneva is the likeliest next port of call for managers who’ve had enough, said Butler. Switzerland encourages hedge fund managers to join a Swiss asset management trade group, said Joe Seet, founder of Sigma Partnership, a financial service consultancy in London and former hedge fund manager.

“It’s like joining a country club and you’ve got to follow the rules,” he said.

Tax Negotiation

Personal taxes for wealthy foreigners can frequently be negotiated with the local authorities in Switzerland, depending on the canton where the manager lives, and may be based on projected expenditures, not income, said Seet. “If you are a down-to-earth billionaire you can negotiate a rate based on what you spend,” said Seet.

Hedge fund managers in Britain are already regulated by the Financial Services Authority, which may prevent some from going because investors appreciate protection from that regime, said Antonio Borges, chairman of the Hedge Fund Standards Board, which has crafted a voluntary code of conduct for hedge fund managers.

“The U.K. regulatory system is still the best in the world and will survive despite this onslaught,” said Borges. “I suspect most hedge fund managers will stay in London because I don’t think long-term these rules will have much success. They have to be significantly modified because it creates too many issues about the industry in Europe.”

EU ‘Too Late’

Managers who meet the EU requirements, including minimum capital, would be eligible to offer their funds to professional investors anywhere in the region.

The EU’s plans “lacked ambition” and came too late, the European Parliament’s Socialist group said on its Web site. “The final proposal does not come close to meeting our expectations,” said Martin Schultz, head of the Socialists in the Parliament.

Poul Nyrup Rasmussen, a Danish Socialist in the Parliament who led the push for EU rules, has said managers threatening to leave Europe were bluffing and wouldn’t want to lose access to Europe’s nearly half a billion investors.

Seet, at Sigma, said many managers inquire about moves to Switzerland, then balk over cultural issues.

‘Bursting the Gate’

“The primary language in Geneva is French, and you really have to speak French; it’s not like the Cote D’Azur where you can get away with English,” said Seet. “Moving is not such an easy thing to do.”

Butler at Kinetics said hedge fund managers who previously balked at moving because of concerns like pulling children out of school, and moving house will look past those now.

“These two barriers change the whole ball game,” said Butler, who declined to name firms considering a move. “Now there’s nothing to stop them bursting through the gate.”

To contact the reporters on this story: Tom Cahill in London at tcahill@bloomberg.net; Edward Evans John Rega in Brussels at jrega@@bloomberg.net

Last Updated: April 30, 2009 06:01 EDT

[Adamdjeffe]

Maybe they should start requiring a taxation of any fund ACCESSABLE in the UK rather than just ones that are based there.

Find some way to make it so that if these guys decide to run away because they are being taxed too much, they cannot pilfer the cash flow from the country they just ran from to finance their hedge funds.

[jamemeveRhype]

London Ponders Its Future as Financial Powerhouse
April 29, 2009, 8:05 am

Tetsuya Ishikawa reaped the fruits of London’s financial boom, structuring and selling his small share of the complex securities that fueled both his professional rise and the uninterrupted economic growth of Britain. When the boom went bust last year, he lost his job at Morgan Stanley, along with about 28,000 other Londoners working in finance.

Mr. Ishikawa, who has written a fictional memoir, has no plans to return to the City, as London’s banking district is known. But Britain’s revenue-starved Labor government will find no such escape, The New York Times’s Landon Thomas Jr. writes.

“By 2010, the U.K. will have the largest budget deficit in the developed world,” Richard Snook, a senior economist at the Center for Economic and Business Research in London, told The Times. “The problem is that the financial services industry has been a huge cash cow for the British government for the last 10 years and now it is going into reverse.”

The country’s budget deficit has soared to 12 percent of gross domestic product; its public debt burden could soon reach 80 percent of annual economic output, a figure that would leave it roughly in the same position as Greece.

But at a time when Britain more than ever needs a financial sector firing on all cylinders, its economic engine is conking out — for a number of reasons, including some that critics blame on the government.

All told, more than 70,000 jobs in finance are expected to disappear over the next two to three years, a big chunk of the total estimated job losses of about 280,000 in London.

The British government has poured hundreds of billions of pounds into preventing several of its largest banks from falling into bankruptcy as the extent of their bad bets became evident. But there is little prospect of a revival anytime soon, as the government is about to impose stiffer demands on banks to keep high capital ratios and to rely less on leverage and once-lucrative trading activities.

That, combined with a more aggressive posture by the regulatory authorities to put a check on bonuses, is likely to hasten what has already been a sharp falloff in corporate and income taxes from the City.

The economic contribution from the British financial sector, according to the Office for National Statistics, peaked at 10.8 percent of G.D.P. in 2007 — up from 5.5 percent in 1996, just before Labor took over. By comparison, the contribution from financial services in the United States to the American economy never exceeded 8 percent.

In a bid to capture more revenue, the British government has decided to raise tax rates on the affluent, many of them working in finance. But the new top income tax rate of 50 percent for those earning at least 150,000 pounds ($219,000) may only make things worse, said Mr. Snook, the economist.

“These people are highly mobile and they will leave London,” he told The Times. “The impact on public finances will be negative.”

Britain’s top tax rate will soon rank fourth behind those of Denmark, Sweden and the Netherlands — not quite the advertisement one would expect from one of the world’s leading financial centers.

In many ways, Mr. Ishikawa’s career tracked the credit explosion that has now imploded. When he began work as a lowly credit analyst in 2002, banks in London issued about 20 billion pounds in securities linked to various mortgage instruments. His career took off as that figure surged to over 180 billion pounds over the next five or six years. Mr. Ishikawa received a $3 million bonus from Morgan Stanley in 2008 as a reward for peddling assets that turned out to be toxic.

With that line of business virtually defunct, banks in the coming years must return to lower-risk and lower-return businesses like equity and bond underwriting, foreign exchange trading and traditional deal-making — businesses that may well be profitable, but can in no way make up for the loss of such a lush specialty.

The Center for Economic and Business Research estimates that corporate and income taxes from the financial industry will shrink from 12 percent of the overall tax take in 2007 to 8 percent this year and perhaps lower in the years ahead, a prospect that could force Britain to increase its already substantial borrowing requirement.

The crisis has humbled all financial centers, from Wall Street to Dubai. According to an index produced in Britain that ranks financial centers around the world, the City of London still comes out on top, closely followed by New York. The gap, though, between these two and Singapore, which is now third, is narrowing.

Lord Adair Turner, the chairman of the Financial Services Authority, agrees that London as a financial center will be in for an adjustment and says that a large portion of the banking industry’s profit contribution to the economy was “illusory.”

But even in a more restrictive environment, he points out, London’s importance as a global financial hub and the most valuable trading center in Europe will not go away.

“The City is important today for the same reason it was important in 1890,” he told The Times.

As for Mr. Ishikawa, who is 30 and grew up in Britain as the son of a successful Japanese executive, he is putting his hopes into a new career as a writer. His book, “How I Caused the Credit Crunch,” chronicles the debauched excesses of the boom — he was briefly married to a Brazilian lap dancer — by lightly fictionalizing his six-year stint in finance.

“I really don’t miss it,” he told The Times, sipping a coffee near the building where he was laid off. “There are many more kids out there more hungry than me.”

Like Faruq Rana, for example. Mr. Rana, the 26-year-old son of Bangladeshi immigrants, was born and reared in Tower Hamlets, a district abutting Canary Wharf that has Britain’s highest unemployment rate.

From his window, he can see the towers of Citigroup and Barclays reaching into the sky and his ambition to one day work as a trader in one of those buildings soars nearly as high.

“Every day when I wake up and open up my window, I can smell my job,” said Mr. Rana, who is a student in a government-financed program at Tower Hamlets College that prepares local youths for jobs in the financial industry.

Unlike Mr. Ishikawa, Mr. Rana did not go to Eton or Oxford, but he remains undeterred.

“I have the motivation and the drive,” he told The Times. “I think I can be one of them.”

[kaysions]

But if you look at nick-taylor's thread of London projects you would hardly think there was any economic concern at all. They're building like Ramses II over there.

[BurdenRobert]

Most of those projects started actual construction before the economy collaped. As in NY, they also have many sites that have been demolished and yet no work is occurring.

Many of my friends in the London markets are out of work.

They are far worse off than we are.

[Rapiddude]

Most of those projects started actual construction before the economy collaped. As in NY, they also have many sites that have been demolished and yet no work is occurring.

Many of my friends in the London markets are out of work.

They are far worse off than we are.

I'd be interested to see what your definition of 'worse off' is (and that is even with Boris handling the reigns).

Let's get this clear - everyone is taking hits. Everyone. When I was in Tokyo and Hong Kong earlier this year, people were feeling just as crap as their counterparts in London (and probably New York); its a global phenomena.

Instead of the concern for London, I'd actually be more worried for New York which took a massive dent in the trust department (looking at you Madoff, the failures of the NY investment scene, and its largest bank Citigroup), because without trust - people will be less inclined to give you their money.

London has its problems, but which city doesn't, lets do a rollcall?
- Dubai is falling apart
- Hong Kong is having to compete against Shanghai and the increasing stranglehold of Beijing
- Tokyo is at the centre of a long-term declining economy (demographics)
- Paris is back to kidnapping CEO's and witch hunts of anglo-saxon ideas
- and the Singapore economy is taking the largest battering going around.

Yes, I think there will be those that opt to go elsewhere, but at the moment the global hedge fund sector is in a right old mess, and has lost the allure it once had. A negligible tax rate rise means nothing to those who probably avoid paying most tax at present (they'll be more worried about the lack of bonuses), while the changes that Paris and Berlin want to enforce across Europe will end up being watered down. The end being increased domestic regulation in France and Germany that will damage the competitiveness of Paris and Frankfurt. I also envision Sarbanes-Oxley (ie level of competiveness) part II in the US.

The real issue affecting London at present however is the decline in international trade and the finance that goes alongside it. All financial centres are taking a hit from this at present, but London, Hong Kong and Singapore moreso because they are ultimately dependent upon the global scene, unlike nationally-fixated financial centres (e.g. New York, Frankfurt, Tokyo and Paris).

The bonus from this situation that London finds itself in however is that the likes of London and Singapore will bounce back sooner and stronger because of the ever-growing strength of emerging markets that haven't taken the hits that the likes of the US, UK, EU and Japan have taken in recent months.


Ultimately however, London will carry on, just as it has done for the last 2,000 years. All I know is that come 2012 London is hosting one hell of a party, will open another rail line that circles Central London, and in 2017 it will have a brand new line (Crossrail) connecting all the major CBD's, two international airports and the Olympic Park.

Of course in-between then there will be a whole host of towers including the future four tallest towers and a tranche of projects like the Tate Modern Extension, British Museum Extension and a torrent of various pedestrianisation schemes and sports stadia.

Naturally as someone who works in finance, its an edgy time, but life goes on.

[tpdirorg]

Ultimately however, London will carry on, just as it has done for the last 2,000 years.

"Historical results are not a guarantee of future performance. "


Now, where have I heard that before.

[ttiokjbnhjjillp]

For most of the past 2,000 years. London was a non-entity. It, like England, started gaining prominence about 500 years ago. London bounced back many times over the past 500 years because England was one of the most powerful countries during that time. Sadly, however, England now is becoming more and more insignificant and is in a financial abyss from which it will be difficult to emerge.

More people will come to distrust London due to the casino game that was conducted in its financial markets. The derivatives that nearly broke AIG came from London. Moreover, AIM is an unregulated disaster. In fact, London's mantra of deregulation now is regarded as absurd and disastrous. With respect to Madoff, he simply was a crook, much like the Brit Nicholas Leeson and the guys in France last year. Crooks always will exist with or without regulation just as laws making murder a crime don't prevent homicides.

NY will always retain its status, in part, because the US financial market is enormous. By contrast, this crisis has heightened divisions between the UK and EU and Continental financial services likely will cluster around Paris and Frankfurt; they will not flow to London.

Moreover, other centers like Shanghai and Dubai will rise dramatically. Shanghai within 20 years will be the No. 2 financial center after NY.

[sleelverrex]

For most of the past 2,000 years. London was a non-entity. It, like England, started gaining prominence about 500 years ago. London bounced back many times over the past 500 years because England was one of the most powerful countries during that time. Sadly, however, England now is becoming more and more insignificant and is in a financial abyss from which it will be difficult to emerge.

More people will come to distrust London due to the casino game that was conducted in its financial markets. The derivatives that nearly broke AIG came from London. Moreover, AIM is an unregulated disaster. In fact, London's mantra of deregulation now is regarded as absurd and disastrous. With respect to Madoff, he simply was a crook, much like the Brit Nicholas Leeson and the guys in France last year. Crooks always will exist with or without regulation just as laws making murder a crime don't prevent homicides.

NY will always retain its status, in part, because the US financial market is enormous. By contrast, this crisis has heightened divisions between the UK and EU and Continental financial services likely will cluster around Paris and Frankfurt; they will not flow to London.

Moreover, other centers like Shanghai and Dubai will rise dramatically. Shanghai within 20 years will be the No. 2 financial center after NY.

I doubt either us will be proven right or wrong for a few years, but I do have a few points of contention:
- You refer to the power of the home nation as if there is a significant correlation to the size of being a financial centre, yet a paragraph later state that Dubai is going to rise dramatically.... the UAE has a population similar to that of Queens & Brooklyn or Outer London, and that isn't the fact that Dubai is pretty much bankrupt.
- We're all in the same abyss (although more correctly it is the Scottish banks: RBS and HBOS that went sour, the English banks didn't stray to far - HSBC didn't go down the route Citigroup went...), so happens also that the US is below the rest of us lot to cushion us when we hit the bottom.
- Yep, AIM is such a disaster and London so distrusted that it is being replicated across the world, next stop Tokyo AIM!
- London's regulatory stance was such a disaster that its two largest financial institutions and investment scene evaporated...

We'll re-convene in 5 years time.

[Neitteloxesia]

I'd actually be more worried for New York which took a massive dent in the trust department (looking at you Madoff, the failures of the NY investment scene, and its largest bank Citigroup), because without trust - people will be less inclined to give you their money.

How sadly ironic is it that New York ripped down the building containing this deco plaque in the lead-up to the crash of 2008:

[JamesTornC]

I doubt either us will be proven right or wrong for a few years, but I do have a few points of contention:
- You refer to the power of the home nation as if there is a significant correlation to the size of being a financial centre, yet a paragraph later state that Dubai is going to rise dramatically.... the UAE has a population similar to that of Queens & Brooklyn or Outer London, and that isn't the fact that Dubai is pretty much bankrupt.
- We're all in the same abyss (although more correctly it is the Scottish banks: RBS and HBOS that went sour, the English banks didn't stray to far - HSBC didn't go down the route Citigroup went...), so happens also that the US is below the rest of us lot to cushion us when we hit the bottom.
- Yep, AIM is such a disaster and London so distrusted that it is being replicated across the world, next stop Tokyo AIM!
- London's regulatory stance was such a disaster that its two largest financial institutions and investment scene evaporated...

We'll re-convene in 5 years time.

Your inferences with respect to my comments regarding Dubai are misplaced. Dubai (or perhaps Qatar) likely will emerge as a Middle Eastern financial center serving the entire region -- not just its population.

On another matter, I don't think that any economist (or any sane individual for that matter) would embrace the unregulated, casino culture that pervaded London.

As a result of this crisis, London, like the UK, is broken. As I stated, NY is and always will be the capital of the world's most potent economy. As such, just from its domestic business, NY will remain the financial capital. Clearly, however, other important centers like Shanghai, Dubai, London, Frankfurt, etc. exist and will continue to emerge.

PS: Your point about HSBC not suffering to the same extent as Citi lacks insight. JP Morgan, Goldman Sachs and others didn't suffer to the same extent as did Citi either.

[sleelverrex]

The Sunday TimesApril 26, 2009

We’re fleeing high-tax Britain, say City tycoons

From The Sunday TimesApril 26, 2009

We’re fleeing high-tax Britain, say City tycoonsIain Dey and Matthew Goodman
Two of Britain’s best known entrepreneurs are considering leaving Britain in protest against Alistair Darling’s new 50 per cent tax rate, as leading figures from business and the City warn of a talent exodus.

Hugh Osmond, the pubs-to-insurance entrepreneur, is thinking about a move to Switzerland. Peter Hargreaves, the £10 million-a-year co-founder of Hargreaves Lansdown, the financial adviser, is looking at the Isle of Man or Monaco. More are likely to follow.

Osmond, whose net worth is estimated at £230 million, said: “A lot of people will be off. It’s highly unlikely that I will continue to have the UK as my country of residence. It’s just as easy to work from any close location – Switzerland or wherever.”

Hargreaves, facing an extra £500,000 on his tax bill, warned: “I won’t pay, I’ll leave.”

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Robert Pfeiffer, a partner at Compass Advisers, a mergers and acquisitions firm, said that businesses such as his did not need to be based in Britain. “We all love living in London but in the end it becomes an economic decision. The clients don’t care.”

He and his partners were discussing a move to Geneva. “Do we want the hassle of moving? Probably not. But there comes a point economically when it’s hard to justify being here.”

And Philip Lambert, chief executive of Lambert Energy, said his consultancy was “seriously considering” relocating abroad, saying the state had “total hostility or apathy towards entrepreneurs”.

Dozens of Britain’s best-known business figures have condemned the new tax grab. Sir Richard Branson said it was a “block to the next wave of entrepreneurs”. Tim Waterstone, founder of the Waterstone’s bookshop chain, slammed the tax as a “disincentive to entrepreneurs”.

Stanley Fink, the former chief executive of the Man Group hedge fund, said: “Nobody believes that 50 per cent is a natural stopping point. There’s nothing to say for the richest it won’t go to 60 per cent, say for those earning over £200,000.

“There will be some successful entrepreneurs who decide to move to Switzerland or Ireland. I’m aware of one or two people who made active plans to decamp when Labour announced 45 per cent and will put those plans in motion.”

From next year anyone earning more than £150,000 a year will pay 50 per cent income tax. The move replaced the 45 per cent tax bracket threatened in the pre-Budget report last November.

The Budget revealed that the UK’s national net debt has climbed to £743.6 billion. The Treasury has said the new tax on high earners will raise about £2 billion a year to help mend the hole in the public finances.

Businessmen warned that raising taxes on the rich would do nothing to boost the Exchequer, as the wealthy can always find ways to avoid it.

Sir John Madejski, the founder of the Auto Trader publishing empire and chairman of Reading Football Club, said: “The powerhouse of this country is the entrepreneurs, the people who make money. To penalise them is silly.”

Luke Johnson, chairman of Channel 4 and founder of Risk Capital Partners, said: “It sends a terrible signal. It proves that whatever the rhetoric from Brown on the entrepreneur economy, the reality is that they don’t believe in it.”

Simon Walker, head of the British Venture Capital Association, said: “There are only six countries in the OECD with a higher tax rate than the UK – places like Denmark, Sweden and Finland. But the point about those countries is that things work there. People feel they can send their children to the local school and use the capital’s underground transport."

[SOgLak]

Your inferences with respect to my comments regarding Dubai are misplaced. Dubai (or perhaps Qatar) likely will emerge as a Middle Eastern financial center serving the entire region -- not just its population.

On another matter, I don't think that any economist (or any sane individual for that matter) would embrace the unregulated, casino culture that pervaded London.

As a result of this crisis, London, like the UK, is broken. As I stated, NY is and always will be the capital of the world's most potent economy. As such, just from its domestic business, NY will remain the financial capital. Clearly, however, other important centers like Shanghai, Dubai, London, Frankfurt, etc. exist and will continue to emerge.

PS: Your point about HSBC not suffering to the same extent as Citi lacks insight. JP Morgan, Goldman Sachs and others didn't suffer to the same extent as did Citi either.

If I backtracked as fast as you did - I'd go back in time, because you pretty much stated that there was somehow a correlation to the 'home country' and the strength of financial centres which is complete rubbish in todays world where money flows across continents, overcoming political differences, nationality, and language barriers in an instant.

Yet somehow London is doomed because of the UK economy (despite everyone else facing difficult situations of their own), when it built itself servicing the global financial system...but New York is okay because it services the US financial sector which has imploded? Hell, Dubai or Qatar aren't going to radically change and represent a region that could be wiped off the map by rogue states or a handful or islamic wacko's who object to the 'ways of the west'!

The more appropriate response would be, what country isn't broken? You seem to completely forget that the US is in an even larger hole than the UK is, or that the likes of Germany and Japan have fallen off a cliff. Even China is struggling with growing unrest from not just the rural areas, but now the wealthier urban areas. May I suggest that you actually travel a bit more to get a better understanding of the world. We all share the gains from globalisation and we'll all share its pains.

The point made regarding Citigroup was that it was the largest bank in New York, but it failed. HSBC which is the largest bank in London (and the UK and world) has buffered the storm well. Granted GS has prevailled, but even they are still focused on London due to its integration into the global economy, meanwhile the largest financial institutions of New York have been gutted.

By any chance did you previously deal with CDO's? Because that might explain why you are so off the mark.....


Actually what does it matter, all I care about after the beauty of life, is Crossrail. At 119km (41.5km in new tunnels) serving 38 stations - Crossrail will open in 2017. In which time New York will have managed to (maybe) construct and open 4.3km of the Second Avenue Subway. Perhaps you ought to concern yourself with more troubling issues closer to home rather than concern yourself with affairs that you can hardly comment on.

[gorbasevhuynani]

Your urban planning degree from an English "university" does not serve you well when you attempt logic or statements regarding financial services.

[ovenco]

Your urban planning degree from an English "university" does not serve you well when you attempt logic or statements regarding financial services.

The irony, calling into question my education when those that went to Harvard/Oxbridge (aka the best of the best) are the ones that created the financial products that caused all this mess in the first place.

I presume you paid big money to go to a good university to learn about to provide insight into the markets. With this knowledge you were able to predict and warn everyone of the impending disaster to the financial markets, your clients have not had any issues, and AIG and Lehman Bros are a ok.....yeah.....

Degrees are meaningless in finance, because if you don't have common sense, concentrate too much on that bonus, or lack a grip of the situation, we end up where we are.

Still uncertain why you have an idea that I took an urban planning course, as it's incorrect and pretty much irrelevant to my present employment in finance. Christ, I pretty much run my own firm which enables me to take a months holiday every 3months around the world. You possibly might achieve that* when you retire after putting in overtime to finish the 2AS.

* depending on your savings and whether you made sound investments

[secondmortgagek]

Winding you up is so easy. This has been going on for years much to my amusement.

[vaalmerruutel]

Guys?

We really do not give a crap about either of your educations.

So could you please can it and stay OT? Enough with the personal stuff. If any of us sitting here in the bleachers wanted that kind of stuff there are plenty of other sites where people tear at each other.....



Please?

[Ecurrexchangess]

The London Times
10 May 2009

Hedge fund chief Crispin Odey ready to join tax exodus

Kate Walsh
HEDGE-FUND BOSS Crispin Odey has threatened to move his firm out of Britain to avoid the 50% income-tax rate on high-earners.

He joins a growing list of Britain’s wealthy businessmen and City financiers, including Hugh Osmond and Peter Hargreaves, who have become disenchanted at the new tax rate and the European Union’s proposed changes to regulation of private equity and hedge funds.

“We are seriously considering leaving,” said Odey, who runs the £3 billion Odey Asset Management. “This government is not interested in keeping London alive as a financial centre. Hedge funds are not yet flying but they are fluttering. Everyone is thinking about leaving.”

Odey, who made a fortune from short-selling British banks last year, is one half of the “Posh and Becks” of finance. His wife Nichola Pease is chief executive of fund manager JO Hambro and as a scion of one of the founding families of Barclays – where her brother-in-law John Varley is chief executive – is a City blueblood.

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Odey feels his industry has been abandoned by the government as it focuses on winning over Labour core voters ahead of next year’s election.

“We no longer have any defence against the French and the Germans [who played a heavy hand in drafting the EU directive]. There is a great sense that the City is much less prized than it was,” he said.

He fears Geneva, Europe’s second hedge-fund hub after London, is “almost closed” as firms scramble to expand offices or secure new ones in the Swiss canton. Zurich, Monaco, Gibraltar, Hong Kong and Singapore are seen as possible destinations.

Odey, whose team of 50 operates out of a period building in Mayfair full of antiques and art, joked that as long as the rivers were stocked with salmon and the valleys with pheasants, he would move anywhere.

Charles Price, founder of the fund of hedge funds business Palmer Capital, admitted that he was also weighing up his options. “Firms have no choice but to consider moving given the lack of clarity about the regulatory environment.”

Kinetic Partners, which specialises in moving hedge funds to Switzerland, has been inundated with enquiries since the recent EU directive. Kinetic’s David Butler said he was advising 15 hedge funds that are “actively” considering leaving.

[Weislenalkata]

Britain's debt outlook lowered to negative
By PAN PYLAS

AP Business Writer
Posted: Thursday, May. 21, 2009

LONDON Britain faces the unsettling possibility of seeing its debt rating downgraded, after credit ratings firm Standard & Poor's said Thursday it has revised the country's outlook to negative from stable.

Though the ratings agency reaffirmed the country's actual long-term credit rating at "AAA" and its short-term rating at "A-1+," it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

The outlook revision does not trigger a formal reevaluation of Britain's rating - unlike being put on credit watch - but does mean that policy makers have to be aware that a downgrade may happen if public finances are not put on the straight and narrow in the near future.

The pound slumped by over 2 U.S. cents to just below $1.56 after the news, while the FTSE share index fell more than 100 points, or around 2.3 percent.

This is the first time Britain has been put on the negative list since since S&P started given its view of the outlook of the country's public finances in the early 1980s.

S&P said the downward revision reflects a more cautious view of how quickly the country's finances can be repaired and that its projections incorporate new estimates of the cost of the government's bailout of the banking sector. It now esimtates that the government's net debt burden will rise to nearly 100 percent of economic output by 2013, way more than the government is currently projecting.

"These projections reflect our more cautious view of how quickly the erosion in the government's revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow," said S&P's credit analyst David Beers.

"The rating could be lowered if we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term," Beers said.

Prime Minister Gordon Brown is under pressure to call a general election from the Conservative Party leader David Cameron to deal with a mounting controversy over expense-account abuses in Parliament. Brown still has a year before an election must be held, but all opinion polls show that the country's swelling debt burden is one of the voters' major concerns.

Figures earlier highlighted the scale to which Britain's public finances have deteriorated.

The Office for National Statistics said public sector net borrowing - the government's preferred measure - jumped to 8.5 billion pounds in April from 1.8 billion in the same month the year before as the country pays for higher social welfare benefits and sorts out the banks.

In his budget last month, Britain's finance chief Alistair Darling predicted that the country's debt position, which aggregates borrowing through the years, is expected to rise to 59 percent of gross domestic product in 2009-10, rising to a peak of 79 percent in 2013-14. When the government came into office in 1997, it said one of its main economic policies was to keep debt around 40 percent.

The statistics office said earlier that net debt stood at 53.2 percent of GDP at the end of April.

S&P's warning comes just a day after the International Monetary Fund said the British government had to target a "more ambitious medium-term fiscal adjustment path" once the economic recovery is established.

"The focus of this adjustment profile should be to put public debt on a firmly downward path faster than envisaged in the 2009 budget," it said.

It said it could for example commit to allocating any upside surprises to growth or revenue to reduce deficits more aggressively and limit the accumulation of public debt.

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[IamRobot]

IMF praise for UK recession plan

By Steve Schifferes
Economics reporter, BBC News


The UK government response to the global financial crisis has been "bold and wide-ranging," the International Monetary Fund (IMF) has said.

It added that "aggressive action" by the government succeeded in containing the crisis and avoiding a breakdown.

But it warned that high levels of household and bank debt meant the pace of any recovery was still uncertain.

And it urged the government to adopt more ambitious plans to reduce the huge scale of government borrowing.

It remains to be seen whether the recent efforts to recapitalise the banks will be sufficient to sustain credit provision at a level required for a robust economic recovery


Bank predicts slow recovery

The IMF is sticking to its forecast that UK GDP will decline by 4.1% this year, compared with the chancellor's forecast of about 3.5%.

It said that the UK economy would contract at a decelerating rate in the near-term, but that the financial system was "still under stress" and that the UK economy remained "susceptible to potential shocks", with the sharp increase in public sector borrowing one of the key vulnerabilities.

"It remains to be seen whether the recent efforts to recapitalise the banks will be sufficient to sustain credit provision at a level required for a robust economic recovery," it added.

In response, the Treasury said it noted "the scale of the challenges" and accepted that "restoring the flow of credit to the economy will be crucial to building and supporting the recovery".

Vulnerable consumers

The IMF also noted that consumers were unlikely to return to their high-spending ways any time soon.

"Faced with falling house prices, significant reductions in the value of pensions and other assets, a deteriorating and uncertain employment outlook, consumers are likely to retrench spending to reduce debt and rebuild savings," it warned.

It said the speed and strength of the recovery was highly uncertain, "given the unprecedented nature of the crisis and the importance of confidence effects".

The IMF added that the depreciation of the pound could aid the recovery by shifting demand to domestically produced goods and services.

But it said that the UK had a "particular exposure" to global shocks because of its large financial sector, overheated property markets, high household indebtedness, and strong cross-border links.

And it warned that there was a need for "greater international coordination" in the event of a crisis involving a major international bank with strong cross-border links.

Andrew Smith, chief economist at KPMG, said the IMF was "right to be cautious in its outlook for the UK economy."

"Distressed consumers may prefer to save and pay down debt and businesses are in no mood or position to invest, so continued expansionary fiscal and monetary policy will be necessary to underpin demand," he added.

Public borrowing

The IMF wants the chancellor to spell out in more detail how he intends to return the public finances to a sustainable downward path.

It suggested that spending cuts were "more durable" than tax rises in reducing public borrowing over the long term, and said that a "broad public consensus" was needed on making a "sizeable fiscal adjustment".

But Robert Chote, the director of the independent Institute for Fiscal Studies, said that "experienced Whitehall hands fear it will be very difficult to achieve even the spending plans in the Budget, let alone more ambitious ones" and it will be difficult for the next government to avoid raising taxes.

The IMF also urged the Bank of England to expand its programme of credit easing by purchasing more private sector debt, as opposed to its current focus on buying up government debt.

But it warned that "at a more fundamental level, the public's confidence in the Bank of England's operational independence remains contingent on the state of the public finances."

Meanwhile Mr Darling re-affirmed his growth forecast and said in a newspaper interview that he still expected to economy to begin to recover by the end of the year.

"I am not going to change my forecast. I remain confident that the we will see a return to growth by the end of the year," he said.