Hedge fund managers are notorious for their second acts—often starting up again after blowups have forced them to shut down. However, few have staged as unique a comeback as Philippe Jabre, the former star convertibles trader for London's GLG Partners who was fined a record £750,000 by the Financial Services Authority for what it calls market abuses. He then left the U.K. and set up shop in Geneva, where he launched a new fund in 2007. His Jabre Capital Management now manages about $5 billion, and several of his funds did stunningly well last year.
Given Jabre's past tangle with regulators, it's ironic that his decision to locate in Geneva coincides with the push in Europe over tougher new regulations on hedge funds, including possible disclosure requirements, along with leverage and pay limits. Higher taxes are also in the works in the U.K.
Switzerland, of course, is not in the EU. It doesn't require hedge funds to register, and its financial industry regulations already are weaker than elsewhere in Europe. Given the current political environment, it's not surprising that London funds such as BlueCrest Capital Management and Brevan Howard Asset Management are joining Jabre in opening offices in Geneva.
The furor over hedge funds in European politics is somewhat baffling to someone watching the industry from New York. First of all, European hedge funds are a relatively small group, as the U.S. still accounts for about 72% of total global hedge fund assets, while the economies of the U.S. and Europe are about the same size. But in the U.S., financial regulatory reform is focused on banks and seems likely to have little impact on hedge funds other than forcing them to register (which they already must do in the U.K.).
Perhaps Europe is just ahead of us. In the upcoming U.K. elections, taxes are a talking point; meanwhile, Brussels is furiously working on new financial regulations. The U.S. is finally tackling the reform of the financial industry, while the tax debate has gone radio silent. Why? Our government spent the last year haggling over health care reform. European countries (including Switzerland) didn't have to deal with that issue. Each one has a national health care plan much stronger than what the Obama administration was able to pull off.
And so we look to Europe. Whatever comes of hedge fund regulation in Europe will affect the global industry, which is why the U.S. hedge fund lobbying group, the Managed Funds Association, has gotten involved. The MFA is bankrolling the Alternative Investment Management Association's efforts in Europe to overturn parts of the European Commission draft law that could potentially choke off European investment in U.S. managers, among other things.
It's a shame to see the EU overreact to hedge funds. Think of Greece and its ban on letting hedge funds buy the bonds it was issuing to stave off financial collapse. That worked really well, didn't it?
Likewise, it would be unfortunate if the U.S. ignored hedge funds as it attempts to strengthen the financial industry and save us all from a collapse as scary as the last one. There must be a smart compromise somewhere between the two extremes, and I'm pretty sure it's not in Switzerland.