Switzerland is mulling over plans for a special 10 percent tax rate for hedge fund managers in a radical move to lure the booming industry away from London.
Hans-Rudolf Merz, the finance minister, has held a series of meetings with leaders of the Swiss banking and investment world over recent weeks to thrash out fresh incentives to counter the overwhelming dominance of the City of London in finance.
The Swiss banking federation has proposed a 10 percent tax on the elite managers, effectively cutting their marginal rate by 35 percentage points. Merz said he was open to the scheme, saying something had to be done to stop the exodus of funds to London.
“It’s an idea I’m carrying around,” Merz said. “The financial marketplace is of enormous importance to our country. I know that we have a disadvantage in taxes. We understand the problem, and we have to solve it.”
The Swiss fight-back comes as fresh research shows that assets managed by hedge fund managers based in London reached $360 billion (181 billion) in 2006, up 40 percent on 2005 and a six-fold increase since 2002.
Although New York remains the world leader with 36 percent of global assets, its share has fallen from 45 percent over the past five years, according to the report by International Financial Services London.
Some 900 funds are based in London, commanding four-fifths of all hedge-fund business in Europe, or 21 percent of the global total. Switzerland barely registers, a serious concern for a nation that lives off global finance.
“There’s no reason fund managers should be in London,” Walter Kieholz, president of Credit Suisse, told the Swiss press. “It’s much nicer to live here.”
However, Merz said London was “too strong” for a “frontal attack” by Swiss funds. “We won’t be able to beat London, not even with such measures,” he told Bloomberg. “That’s not my intention either. It’s absolutely vital that there’s a certain competition.”