Top hedge fund jurisdictions like London and New York have just got a reality check. Competition from other jurisdictions has gradually been intensifying and the announcement that Switzerland is planning to give tax breaks to hedge fund managers is more proof that the challenge is now gaining momentum.
In a step to boost its standing among other financial centres and in a bid to lure them from New York and London, Switzerland plans to ease the tax burden for hedge funds and private equity funds and soften regulations for investment funds. The move would see the total tax burden for managers of hedge funds and other private equity companies drop to 15 to 20 per cent overall. The change will be made by reclassifying management's investment profits and management fees.
It has to be approved by the heads of Switzerland's cantonal tax departments, but will not require new legislation. If the proposal is accepted, Switzerland could gain thousands of jobs, says Urs Roth, chief executive of the Swiss Bankers Association.
The move announced on Friday is part of a plan supported by the federal government to strengthen the international competitiveness of the financial sector. A recent report on the hedge fund industry issued by the Swiss Federal Banking Commission (SFBC) revealed that around 5 per cent of all the assets invested in Switzerland are invested in hedge fund products. Moreover, hedge funds investment advisers are increasingly opening offices in Switzerland.
The Swiss have signalled their intention to challenge the world's largest financial centres. With a crisis gnawing away at the roots of finance in the US and the UK, and with Switzerland's strong banking system, skilled resources and proposed tax changes, the global financial fight has just intensified.