Unfriendly taxes will drive away hedge fund managers

In the end, though, it's difficult not to comment on the state of flux in which the financial world finds itself once again. There has been a steady exodus of hedge fund managers from London towards offshore venues such as Switzerland (and, until recently, venues in the Gulf).

Brussels and Washington have been making waves of its own in the world of fund management.

European fund managers have been fretting about the EU's Alternative Investment Fund Managers Directive, published in April, and their US counterparts have been fixated on forthcoming fund regulations.

I recently attended an investment seminar held by leading City of London lawyers, SJ Berwin. It became clear that the Europeans have significantly more to worry about than the Americans: "The US proposals are nowhere near as draconian or wide-ranging as those published by the European Commission in April," said an SJ Berwin spokesman. "The US legislative process is ongoing, and it remains unclear precisely what scope any final legislation might have. But it is increasingly likely that there will be legislation in the near future, and there are preparatory steps which European based managers should consider,"

It seems that the key legislative proposals would eliminate the "private adviser" exemption that currently exempts from registration with the SEC an adviser to fewer than 15 clients (with each private fund being treated as a single "client" for this purpose), provided the adviser does not advise a US registered mutual fund or hold itself out to the public in the US as an investment adviser.

"There is still some hope that many venture and some buyout fund managers will escape these new rules: the bill passed by the relevant committee includes a proposed exemption for managers of "venture capital funds", and the proposal that will be debated in the Senate includes an exemption for both managers of 'venture capital funds' and managers of 'private equity funds'," said the Berwin man.

Yet again we see the supposed big boys of finance driving away business by creating an unfriendly tax environment. The Swiss – and the Gulf – stand to benefit.

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