The ultra rich today may include people as diverse as Russian oligarchs, Arab oil sheiks, American tech moguls, English aristocrats, Chinese manufacturers or Indian software barons. As a group, they form the biggest investors in Hedge Funds and Private Equity after institutional investors. As a group, they also have a deep distaste for the local tax man and like to be close to their money. Small surprise then, financial centers with the friendliest tax regimes and proximity to the ultra rich have emerged as the top places in the world to distribute Hedge Funds and Private Equity. So, what are the best places in the world for Hedge Fund or Private Equity companies to gather assets in 2008?
Dubai, which has now become a byword for fantastic utopian glitz, arrived on the scene of the ultra rich long before the architects at Skidmore, Owings & Merrill designed the now nearing completion Burj Dubai tower with 156 floors. The tower reportedly cost over 20 billion dollars to build and 900 condominiums offered for sale in 2004 at undisclosed (albeit reportedly outrageous) prices sold out in 2 nights, for cash payments. One realtor in Dubai estimates that Russians own half of “The World”, Dubai’s multi-million dollar development of 300 man made islands in the shape of the world. There may be a credit crunch in the western world, but in this gulf oasis of finance, there is quite literally an avalanche of liquidity and all this liquidity swilling around has to be mopped up rather quickly. Mark my words, in 2008, Dubai will emerge as the #1 place in the world where assets for Hedge Funds and Private Equity will be raised.
As the first jurisdiction in the world that allows retail distribution of Hedge Funds for individual retail investors who are able to subscribe to Hedge Funds with a mere US$ 50,000,
Hong Kong remains one of my favorite bets for distributing Hedge Funds and Private Equity. Although, over the past 5 years, Singapore has steadily attracted Hedge Funds from Hong Kong through tax incentives and increasingly friendly regulation, Singapore lacks the one ingredient Hong Kong has for distribution success: proximity to and close relationship with the mainland Chinese ultra rich. It may be very likely that the overheated stock markets in Shanghai trading (Yuan denominated) A shares and Hong Kong trading (US$ denominated) H shares, after having returned almost 90% in 2007 will flatten out in 2008. Brokers in Hong Kong who are able to advise their ultra rich clients to book their massive profits and park the proceeds in arguably safer US or European hedge funds will be ideal partners for hedge funds seeking to raise assets. Hong Kong brokers also act as a channel for the excess liquidity spilling over not only from the overheated Chinese economy and Taiwanese speculators but also Japanese funds escaping Japan’s draconian tax regime.
In Europe,
Switzerland and
Luxembourg will continue to dominate the European Hedge Fund asset gathering scene. Tax dodging European ultra rich have traditionally parked their funds in Switzerland and they are now being joined in droves by the new ultra rich from former Eastern block countries. The ultra rich from the former eastern block (and now mostly EU countries) do not have a wide range of investment choices to choose from in their home countries and certainly not the types that have potentially high returns. In 2007, Luxembourg replaced former Byzantine regulation with new Hedge Fund friendly regulation making it as competitive as Cayman Islands or other distant, difficult to reach Caribbean islands.
New York still wears the crown as the king of Hedge Fund asset gathering in the Americas. New York attracts the top hedge fund strategy talent in the world and is always on the cutting edge of constantly seeking alpha. This is indeed where the money still is but frivolous litigation and regulatory hurdles are beginning to drive business away.
Wishing you a happy holiday season and a prosperous New Year.
- Eric
