The financial crisis saw the New York area hedge fund industry enlarge its share of a shrinking global asset pie for the first time in a decade, according to a UK government-affiliated body that tracks geographic shifts in fund management business.
New York's share of global hedge fund assets edged upward in 2007 and 2008 while London's share moved correspondingly lower, International Financial Services London said in its latest annual report.
The fraction of global hedge fund assets managed by firms located in the New York area ended 2008 at 42 percent, up from 40 percent in 2007 and 39 percent in 2006. The proportion had fallen steadily from 52 percent in 2000. Meanwhile, London's share climbed from 8 percent in 2000 to 20 percent in 2007, before sliding to 18 percent last year.
A Political Football
Such figures are often cited by elected officials in both the U.S. and UK to argue that government actions such as tax levies or regulations are causing their respective financial centers to lose market share. IFSL, for instance, produces its reports in partnership with the City of London and the UK government's Trade and Investment department. And New York Mayor Michael Bloomberg, a finance industry leader himself before seeking public office, campaigned a few years ago to promote the idea that stringent U.S. financial reporting and disclosure rules were driving business away from New York to London.
Similar threats now loom over the UK, where top personal tax rates were hiked end, and Europe, where the European Union is pushing for tough new regulations on alternative asset management firms. The controversial EU rules would apply to the UK. That's prompting several of Europe's biggest hedge fund managers to prepare to set up shop in Switzerland. Says the Financial Times: "While few London funds are likely to make wholesale moves abroad, several are said to be exploring options to relocate employees or change the technical domicile of their headquarters."
Overall, hedge fund assets worldwide slumped 30 percent last year to $1.5 trillion, IFSL reported. The decline, the biggest on record, was caused by a combination of investment losses, shareholder redemptions, and funds ceasing operation and returning money to investors. IFSL says global hedge fund assets are likely to shrink 20 percent further in 2009, "as some hedge funds, particularly in the U.S., had suspended redemptions late in 2008."