London Eyes New York Hedge Crown02.29.2012
London is set to rival New York in the coming years as the global centre for hedge funds, according to the authors of a new report.
The rise of China and other emerging Asian economies is expected to drive the growth of the global hedge fund industry and the City of London is likely to be the main beneficiary due to its prime location and burgeoning skillset.
New York remained the world’s leading centre for managers of hedge funds, according to a report published today by TheCityUK, an independent body promoting UK financial services. The U.S. alone managed around 70% of global hedge fund assets at the end of 2011, with New York claiming 42% of this figure.
However, for the same period, London now has a respectful 18% of the global market and rules the roost in Europe, managing 85% of the continent’s assets. London, despite losing some ground last year, has managed to double its share of the global market over the past decade. New York, on the other hand, has seen its proportion of global hedge fund assets shrink from just over half in 2001 to 42% last year.
The UK and U.S. are leading locations for Asian hedge fund assets with around a quarter of the total each. Funds based in Asia – typically Hong Kong and Singapore – are usually smaller, younger and often heavily reliant on European and U.S. investors.
Marko Maslakovic, senior economist at TheCityUK, said: “London is the dominant hedge fund centre in Europe and internationally, due to its prime location, it has advantages over New York and also Tokyo.
“It is not just one factor why London is proving so popular with Asian hedge funds but, rather, a number of factors as the UK can claim to be the leading centre for hedge fund services such as administration, prime brokerage and custody.”
Globally, assets under management of the hedge funds industry totalled $1,902bn last year, a 3% reduction from 2010, but Maslakovic does not believe that upcoming regulation in Europe and the U.S. will affect the leading centres overly.
He said: “New York and London will remain the global hedge fund capitals despite upcoming regulation in the US and Europe. I don’t think that business will move to Asia, for instance.”
In Europe, the focus is on implementing the Alternative Investment Fund Managers Directive, which is expected to become law by July 2013. The AIFMD aims to bring greater transparency and stability to hedge funds, private equity and other funds without a Ucits passport in the European Union through greater regulatory supervision.
The U.S. is similarly tightening hedge fund regulations in the wake of the global financial crisis through the Dodd-Frank Act with changes in registration requirements and reporting of information for use in monitoring systemic financial risk. This is likely to be fully phased in by the end of 2013.
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By Dan Smalley, Tom Williams, and Jason Lawrence of Itiviti, a Broadridge Business.