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London will thrive, says hedge fund

18/01/2010 13:22
London will thrive as a financial centre over the next decade by becoming the natural western hub for emerging market growth, according to one of the City’s best-known hedge funds.

In stark contrast to bankers’ doom-laden predictions about the City’s imminent demise and defections of hedge funds amid movement of some staff to Switzerland by prominent funds such as BlueCrest Capital and Brevan Howard, Toscafund is convinced that the growth of the Bric nations – Brazil, Russia, India and China – can only work to London’s advantage.

“The idea that London is going to be full of tumbleweed in 10 years is not credible,” said Savvas Savouri, chief economist at Tosca. “There are too many aspirational economies that don’t have infrastructures of their own.

“We have an affinity with India, with the Gulf, even with China, via Hong Kong. These markets will want a western hub.”

He predicts that London will attract at least 100,000 new financial services jobs over the next decade.

The upbeat analysis of the City’s prospects came in stark contrast to a crisis of confidence, exacerbated last month by the imposition of a 50 per cent supertax to be levied on bankers’ bonus pools.

Bankers have described the supertax as confirmation of the UK’s hostility to finance. It follows the introduction, from April, of a new 50 per cent top rate of income tax and moves to crack down on the taxation of so-called “non-doms” – individuals who live in the UK but are not domiciled there for tax purposes – that affect many elite foreign-born bankers.

Boris Johnson, London mayor, has warned that banks plan to shift thousands of jobs out of the capital. JPMorgan Chase has even hinted that it could abandon London as its main European base.

Tosca argues that such threats are empty. “For those concerned that tax and regulation will deflect new arrivals from London, we say this: taxes are rising and regulation is being tightened elsewhere too.”

Barack Obama, the US president, announced last week a plan for a levy on all big banks, a move that will cost the industry an estimated $90bn (£55bn) over the next 10 years.

Mr Savouri’s prediction is based partly on an extrapolation of the arrival of Japanese banks in the City 20 years ago.

“If the Bric economies were to match the presence in London of Japan’s banks on a per capita basis, the number of incremental jobs would exceed 180,000,” he wrote in a paper sent to clients last week.

Although the paper praises the investment being made in London before the 2012 Olympics – and predicts that the capital’s financial services growth will be the most intense in the five years that follow the games – it argues generally that the City’s prospects look bright “despite, not because of” government policies.

Tosca came close to collapse in 2008 after mistiming investments in troubled banks. It was the second biggest shareholder in Washington Mutual at the time the bank failed. But after a 67 per cent slump in the value of its flagship fund that year, it bounced back in 2009, generating a return of close to 45 per cent.