The UK needs to set up a viable regime for policing domestic hedge funds if it is to encourage more managers to move their assets onshore, a government-created working group argues today. In a wide-reaching report launched by Lord Myners, the City minister, the group says that hedge funds should be able to launch their funds in the UK as quickly as they can in rival centres such as Ireland and Luxembourg.
It says that fewer restrictions on investments and borrowing limits would encourage fund managers to locate funds in Britain rather than offshore. The tax treatment of funds needs to be clarified as well as the personal tax status of individual managers, it says.
The Asset Management Working Group, commissioned by Alistair Darling, the Chancellor, also urged the Government to look again at the controversial issue of stamp duty on share trades, arguing that it reduces investment returns and prevents funds from locating in the UK.
“An opportunity looms for the retention and attraction of the global alternatives industry by establishing a tax-effective onshore regime,” Robert Jenkins, co-chairman of the group, says. “To put it provocatively, bring Ireland and Luxembourg to the UK and do not allow the UK’s alternatives industry to move to an Ireland or Luxembourg,” he says.
The group highlighted that the UK is the clear centre of asset management for Europe, with a 34 per cent market share, according to figures from Efama, the European trade body.
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However, favourable regulation and tax treatment means that asset managers based in the UK often register or list their funds offshore in France and Germany, as well as Luxembourg and Ireland. Here, the UK has only an 8 per cent share of the European market.
According to a report by the Investment Management Association and KPMG, the UK exchequer loses as much as £1 million in tax revenues for every £1 billion of funds that are domiciled overseas.
The Asset Management Working Group is the latest in a series of financial services groups to come up with recommendations for how the Government can act to maintain the competitiveness of the UK as a financial centre.
It features industry luminaries such as Martin Gilbert, chief executive of Aberdeen Asset Management, Dean Buckley, the chief executive of Scottish Widows Investment Partnership, and Paul Marshall, chairman of Marshall Wace, the hedge fund.
The group says today that government should work with the asset management industry and regulators at the Financial Services Authority (FSA) to formulate a viable regime for onshore hedge funds.
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It says that UK investors, often known as the “buy-side” are at least as important as banks to capital markets and the wider economy. It also urged the FSA to encourage shareholders to engage directly with companies to secure better good corporate governance. Lord Myners has previously berated UK investors for acting as “absentee landlords” in the run-up to the banking crisis.
While the group expresses concerns about a proposed EU crackdown on asset managers, including hedge funds, it argues that the policy represents an opportunity for the UK as funds will consider relocating both their headquarters and their managed assets.