Financial services firms in the U.S. are witnessing living theatre:  the U.K. introduced a new tax on hedge fund manager earnings and some top managers have taken flight.  Fund managers, along with federal and state treasury officials are following the action. 

According to The Financial Times, so far only a handful of hedge fund partnerships have moved their headquarters offshore but a far greater number of individual employees than previously acknowledged have moved to subsidiary offices abroad.  One in four hedge fund employees have left London to move to Switzerland, where the tax regime is considered more stable.  Britain stands to lose upwards of $800 million in annual tax revenues.  Just the loss of 2 top managers to Switzerland is expected to cost the Treasury over $320,000. 

(i) Alan Howard, founder of Brevan Howard, Europe’s biggest hedge fund, and (ii) Mike Platt, founder of BlueCrest Capital, the third biggest .

The trigger for the departure of many hedge fund managers was the introduction this year of the 50% tax rate on earnings above £150,000 ($240K).  But increasingly, they also complain about political attacks and regulatory uncertainty.  According to the government’s own estimates, 1/4 of all income tax received this year will be paid for by top earners subject to the new 50p tax rate.  But the Treasury acknowledges that the higher rate will yield less than 1/3 of initial projections, as people move overseas, and high-earning foreigners think twice about coming to the U.K.  [FinTimes, 10/1]