A Creditable Option

GILES ADU, INWARD INVESTMENT MANAGER, JERSEY FINANCE

Whilst there has been a lot of talk about hedge fund managers relocating from the UK, there has also been some speculation about the extent to which this was materialising.

What is certain is that there is a desire amongst hedge fund managers to consider a relocation. Research of a sample of UK investment managers conducted recently showed that 23% were very likely to leave the UK within two years, while a further 32% may possibly leave within two years. (Source: International Fund Investment Survey 2011).

This is being driven by a number of factors. Taxation in the UK is becoming a much more significant issue than it has been in the past. Marginal tax rates for higher income earners, depending on location, can be around 60% or possibly even higher. It’s clear that hedge fund managers consider this sufficiently significant to look at alternatives.

Hedge funds criticised

Moreover, against the backdrop of the financial crisis, whilst the finance industry generally has had to work hard in terms of preserving reputation, the hedge fund industry in particular has been the target of much ‘anti-finance’ criticism. Managers currently feel as if they are public enemy number one in the UK, to the extent they are thinking they can do what they do somewhere else and avoid this criticism.

With all this in mind, a number of managers have made the decision to relocate from the UK to alternative locations, although it is true to say that these numbers are not as large as some may have expected. It is a process that takes time: we can expect to see a sustained outflow of managers during the next few years.

What happens as this unfolds is going to be interesting. Up until now, there have been several locations, such as Switzerland, that have proved popular amongst managers relocating. However, the sense is that this tendency is now changing, as managers realise there are other options open to them.

In fact, Jersey provides a really attractive proposition and is increasingly a location in the minds of managers. The number of enquiries about a move to Jersey has increased significantly in the past year. Jersey has welcomed a number of hedge fund managers establishing a presence recently, including a number of significant names such as Alden Global Capital, adding to a list of names already here such as Altis Partners, Global Advisors and Brevan Howard. It is expected that the number of such firms will continue to grow.

This sentiment was underlined at the Hedge Fund Re-domiciliation for Managers Conference, held in London at the end of May. Jersey Finance made a presentation at the conference. We expect the interest shown to be equally evident at a presentation Jersey Finance is holding in London later this summer for managers who may be considering a move away from the UK.

Flexibility of hedge fund firms
What makes relocating a real possibility, we increasingly find, is the flexibility of the hedge fund business. Being a largely knowledge-based industry means that managers can be very flexible in where they operate from. Whilst up until now London has been deemed really the only place to run a hedge fund from, the communications and expertise available in other places has become just as efficient.

In Jersey’s case, we’re not looking at rafts of managers relocating. Instead, we’re looking at fairly select managers that satisfy certain criteria. It’s more the niche players, those who are able to make choices that larger outfits would find more difficult. As far as Jersey is concerned, it’s about giving those managers another, credible choice.

With that in mind, we are hearing from a range of hedge fund, private equity and real estate managers who think they would benefit from relocating to Jersey. We are tending to attract managers who are systematic in their process – who use algorithmic and electronic approaches to transacting and whose business is very transportable. Those kinds of businesses have no need to be in a specific geographical location.

Ultimately, Jersey could evolve into a hub for Commodity Trading Advisors and systematic managers. If you look at Florida, for example, commodity trading really started there in the 1970s but, other than the weather, there was no major reason why it should have done so. People will follow where others go so, if one manager goes somewhere and is successful, others begin to think it could also work for them. That’s what Jersey is starting to see happen and, looking at the systematic businesses that are here already, I believe that will continue to gain traction.

This can work well for investors, too. As a hub of specialist managers begins to develop, investors who need to visit managers for due diligence purposes or to talk to managers can do so all in one go.

Support services attractive
The infrastructure of existing supportive service providers in Jersey – the law and professional services firms, for example – is also proving to be a real attraction. It’s clear from talking to managers that Jersey as a physical location has substance. The quality of firms and people in Jersey are proving good enough for firms to be comfortable with doing business on the island.

Jersey service providers continue to work closely with the regulator to amend existing laws and create new laws to facilitate innovative products to enhance the offering to clients. There is also an emphasis on providing high quality active fund corporate governance in Jersey, which can be hugely valuable to managers.

In terms of the perception people have of Jersey, it’s often surprising to hear that people see Jersey as a place people move to once they’ve been successful, when in fact the reality is Jersey can be a place to build and grow a business. We’ve seen that with a number of managers who have moved to Jersey in recent years, who have increased the size of their business, both in terms of the value of assets they have under management and their number of employees. The Jersey authorities are very accommodating where, in cases where a business needs specialist expertise only available outside of Jersey, permission can be granted to allow that person to relocate here.

Linked to this, often people think that property in Jersey is prohibitively expensive. However, given that often managers live in central London, Jersey is in comparison very reasonable, both for residential property and business premises.

Lifestyle factors
Managers who have relocated to Jersey recently have cited Jersey’s quality of life as well as its simple tax system as key advantages. Jersey’s English-speaking yet international population makes it very easy for incomers to settle in the new environment, whilst the excellent education system, available for all ages and operating the UK curriculum, makes Jersey an attractive option for relocating families.

There are a wide range of activities and water sports available which proves to be highly attractive. There is the added benefit of Jersey being close to London – just a forty minute flight – making a move away from the UK less traumatic.

The process to relocate to Jersey is simple and can be completed surprisingly quickly. Supported by the government and financial regulator who have an ‘open for business approach’, we are finding more and more that the flexibility of a hedge fund manager’s business, together with the combined business and personal benefits Jersey offers, are making Jersey a real, credible alternative for managers.