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.