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Portfolio > Alternative Investments > Hedge Funds

London-Based Hedge Funds Prosper

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LONDON (–Sure, hedge fund managers are everybody’s next-door neighbors in Manhattan, but in London they also are becoming more commonplace as the hedge fund industry continues to grow in Europe.

International Financial Services London, an organization that promotes U.K.-based financial services industry worldwide, released a study that finds a growth rate of 60% in 2004 for hedge fund assets managed out of London.

London’s share of the European hedge fund industry totaled 74% in 2004, which is up from 70% in 2003. Adding in funds of funds and U.S. hedge funds with London trading desks, the city accounts for approximately 90% of the hedge fund assets managed in Europe, totaling US$190 billion, IFSL estimates.

New York still is the leading hedge fund center worldwide, with twice as many hedge fund managers as London. California and Connecticut also are leading locales for fund activity. Japan is the next hedge fund home of choice and accounts for a quarter of the US$47.4 billion in Asia-Pacific funds.

But London seems to be basking in the hedge fund glow more than any other city. Hedge fund assets managed in London essentially tripled from 2002 to the end of 2004. Researchers found that of the 900 European-based hedge funds, about two-thirds were located in London.

In its promotion of London’s asset management business, IFSL officials tout the city’s local expertise and the proximity of clients and markets within a favorable regulatory environment.

Availability of prime brokerage services also is a plus, and since London is home to about half of Europe’s investment banking activity, officials said that London is a leading center for prime brokerage services, handling more than 90% of European prime brokerage business. The largest prime brokers in Europe as of January 2005 were: Morgan Stanley, with 26% of total European client assets; Goldman Sachs (16%); CSFB (7%); and Deutsche Bank (6%).

A prevalance of ready-and-willing investors also makes the option to do business in London an appealing one. The United Kingdom leads the rest of Europe in investor allocations to hedge funds. Research from the consultant Watson Wyatt Investment Consulting, Reigate, U.K., suggests that alternative investment mandates from U.K.-based pension funds doubled from 2003 to 2004, to total approximately UK?? 1/2 1.75 billion (US$3.3 billion).

According to the IFSL, the United Kingdom also is the most popular nation in Europe for managers of hedge funds. The Financial Services Authority places restrictions on the marketing of hedge fund products to the general public, but through intermediaries hedge funds can be sold to U.K. individuals. Fund managers also are authorized to sell their wares to other countries within Europe through the FSA’s Investment Services Directive and the European Economic Association.

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Contact Bob Keane with questions or comments at: [email protected].


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