Funds Hub

Money managers under the microscope

Don’t head for the slopes just yet

May 12, 2009

Disgruntled London-based hedge fund managers annoyed by the prospect of tougher EU rules and higher income tax shouldn’t pack their bags and fly to Geneva just yet, according to law firm Katten Muchin Rosenman Cornish.

rtxd323At a breakfast briefing at London’s plush Capital Club this morning, legal experts said further details and amendments to the European Commission’s draft directive last month were likely, but said it was too early to decide to relocate.

“It’s not a no-brainer that you just run off to Switzerland,” said managing partner Martin Cornish.

“It’s way too early to make any such decisions. There’s no certainty that this is going to come in in this format at all. Unless Switzerland falls into line (with the planned EU rules) you won’t be able to market your products back into the EU.”

At the weekend hedge fund grandee Crispin Odey told the Sunday Times he was “seriously considering leaving” the UK in response to the government’s plans for higher tax on top-earners.

Yesterday Odey Asset Management CEO David Stewart told me the firm would not abandon Britain, although it did already have longstanding plans to open a Swiss office, which would be able to avoid the new EU rules.

Meanwhile, although the EC’s draft directive may already seem quite detailed, Cornish believes it allows plenty of room for the Commission to insert further, even more detailed, rules. 

“It’s completely contrary to the way regulation has been moving in the last 15 or 20 years… It looks like there’s a lot more detail to come, which is really quite worrying.”

One area that could see further detail is who exactly is covered by the new rules.

According to Cornish, the rules cover the managers of a fund rather than the managers of the assets of a fund. Rather than being angels on a pinhead, this is actually a key issue if, for example, part of a fund’s assets are sub-contracted out to a portfolio manager who is not the fund’s overall manager.rtxcyu4

Meanwhile, further clarification is needed, according to Cornish, about where onshore closed-end investment companies or non-Ucits retail funds fit into the new regime. “By dividing the world into Ucits and others they’ve covered everything else, and it’s hard to believe they really know what they’re doing,” he said.

Lastly, hedge fund managers, prime brokers and others who greeted the publication of the EC draft directive with less than total enthusiasm should not bury their head in the sand.

“We shouldn’t think this will go away or they’ve got this hopelessly wrong and they’ll just tear it up,” said Cornish.

“We can all recall fairly negative press pieces about hedge funds,” said special counsel Edward Black. ”They’re pushing at a fairly open door. It’s about as popular as saying ‘let’s regulate MPs’ expenses‘.”


With a possible taxrise for top earners the British may have opened Pandoras box. Many hedge funds will think where there’s smoke there’s fire and may start looking beyond the Uk border for greener pastures.


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