Funds Hub

Money managers under the microscope

Levered out

June 4, 2009

With the finalisation of new EU laws on regulation of hedge funds and private equity likely 6 months away, we should be prepared for an awful lot of hand-wringing and much talk of an industry exodus to lakeside retreats in Switzerland.

The latest word on this is that some managers have warned the Treasury that funds are already looking around for alternative locales where their love of leverage attracts less concern.

But are there really that many funds using prohibitive levels of leverage? Average prime broker leverage in the UK fell to around 1.15 times in October 2008, according to the FSA, although European lawmakers may end up judging excessive what hedge funds feel is relatively low. Meanwhile, hedge fund execs routinely enjoy juxtaposing relatively modest aggregate hedge fund gearing against the excesses of the banking sector.

We’ve written before that some funds are finding the thirst for investor due diligence such that they are moving into London to become more accessible to the new jitterati.

And although lawyers and administrators will keep plugging away in pursuit of the fees that would accompany a wholesale shift away from Curzon Street, there are some that seek to play down the risk. City of London Mayor Ian Luder told Reuters last week he thought hedgies would want to stay where the action is, and John Schneider, managing director of Navigant Consulting’s financial services practice, told us today that he simply did not believe there was “sufficient economic case” for hedge fund managers to leave.

(See also Relocation, relocation and Quality Control)

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