London doubles its share of global hedge fund assets
David Teather
Monday April 16, 2007
Guardian Unlimited
London's share of global hedge fund assets has more than doubled over the past five years, underlining the capital's claim to be a financial centre that is challenging New York.
Between 2002 and 2006, London's share increased from 10% to 21% of the global assets under management.
It has significantly narrowed the gap on New York, which has fallen from a 45%-share to a 36%-share over the same period. California has the next largest concentration of hedge fund managers in the US, managing 15% of global assets.
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The hedge fund market has grown rapidly in recent years as investors seek out higher returns than straight forward investments in bonds or the stock market. Hedge funds now manage around $1.5 trillion (£750bn), up from just $592bn in 2002.
According to International Financial Services London, which published the research, there are around 900 hedge funds located in London, accounting for 80% of the hedge fund assets under management in Europe.
Around $360bn is now managed from London. Other European centres for hedge fund management include Switzerland, Spain and France.
The hedge fund industry has blossomed in Mayfair in central London, rather than the more traditional confines of the City or Canary Wharf. It has attracted hedge fund managers from around the world, many of them American and many of them former investment bankers looking to keep more of the money they make for themselves. Typically, the fee is 2% of the assets under management and 20% of any profits.
Hedge funds are loosely defined as vehicles that invest money for the super-rich, and increasingly for other financial institutions, including pension funds. They have a prohibitively high minimum investment and, as their investors are supposed to be sophisticated, they are largely unregulated. They can use whatever investment strategy they want - some straightforward, others fiendishly complex.
Although they are managed in the world's leading financial centres, most of the funds are domiciled off-shore in locations like the Cayman Islands or Bermuda for tax purposes. A record $126bn flowed into hedge funds in 2006.
"Part of the reason for London closing on New York is that the US hedge fund market is more mature so Europe is growing at a faster rate," said IFSL economist Marko Maslakovic. "We don't really have a crystal ball that will tell us whether London will surpass New York, but we do expect this trend to continue.
"What makes London different from New York and Tokyo is that the business is a lot more international. London also has advantages like the close proximity of clients and markets, a traditionally strong asset management industry, a favourable regulatory environment and a helpful time zone."
Elsewhere in the US, Connecticut, Illinois and Florida each manage around 6% of global hedge fund assets.
Last week a list of the wealthiest 100 traders in the world, published by Trader Monthly, said 93 were hedge fund managers. Of those 27 were based in London. The highest ranking in London for the second successive year were Noam Gottesman and Pierre Lagrange, joint founders of GLG Partners, who took home between £200m and £250m each last year.
Other leading London-based traders include Chris Hohn of The Children's Investment Fund who led opposition to Deutsche Börse's attempt to buy the London Stock Exchange, and Michael Farmer of RK Capital - a metals specialist and devout Catholic who once toyed with the idea of becoming a priest and who took home around £100m.
London is also a leading centre for hedge fund services such as administration, auditing and so-called prime brokerage, support and trading services offered to hedge funds by investment banks. |
