| 10 July 2010
So here I am, in January 2011, the 25-year-old scion of an august European banking
family based in London, fresh out of Harvard Business School, and my Dad, who
is still Chairman, wants me to get some hands-on experience of actually running
a business before he steps down in a few years' time. So he's putting up USD100m
as start-up capital and he is suggesting I specialize in family offices (that's
the name given to investment management partnerships which look after the wealth
of individual families). It's an area we've never majored in, and Dad thinks
we ought to get it going. I can't disagree with that; it's probably been the
fastest-growing sector of wealth management in the last ten years, and we're
missing out big time.
Although the firm has its HQ in London, we also have substantial capital and
offices in New York and Zurich, and of course we have branches all over the
place. So Dad's first question to me (and my first
question to myself) is: "Where are you going to put the firm?"
The criteria must include:
- Good communications, not just in terms of telecoms, but also good airline
connections, because clients are going to want to visit us.
- Availability of qualified staff.
- A good tax environment for investment purposes; we aim to have at least
several billion under management within a few years.
Now of course we could separate the sales side, the meeting and greeting, from
the investment management. But clients don't like that very much: they want
to look into the eyes of the person they are going to trust with half a billion
dollars of their wealth. So in the end, the choice of HQ cities is quite limited.
London, and New York, perfect as they are for meeting clients (and I would
have all the advantages of our existing offices and support services) can be
ruled out straightaway. The US Restoring American Financial Stability Act has put
a strait-jacket around banking operations and staff remuneration, and in Europe
the Capital Requirements Directive is even worse. No-one wants to work under
those sorts of rules, and no bank would willingly submit itself to legislation
which will double or treble the amount of capital you have to hold. Dad says
that if he wasn't already near retirement he'd move the whole operation lock,
stock and barrel to Hong Kong or possibly Zurich. And he says that there isn't
a senior banker in Europe or America who isn't asking himself the same questions.
Zurich is possible. The problem is that Switzerland is locked into a deadly
embrace with the EU, and little by little all its financial freedoms are being
whittled away. After what happened with UBS and its US clients it's a tough
sell to persuade clients into Zurich if they're not already there, and then
they're probably locked up with someone else.
So, a bit reluctantly, because of the life-style, I have to decide against
Europe. There are one or two outliers, Canada for instance, which hasn't (yet)
given in to the G20's demands. Toronto isn't a bad place to be. Then there are
the big International Financial Centres (not allowed to call them 'offshore'
any more!) like Panama, Cayman and Jersey. We'll use them, of course, for fund
management, but the skill pools are quite limited and they are ruled out on
travel grounds. They have something called fog in Jersey, and you've got the
EU breathing down your neck.
So in the end it's a no-brainer, and it's called Hong Kong. Low or no tax,
plenty of banking professionals, good connections, and right next door to the
biggest source of new wealth that there is.
"Of course," said Dad. "I knew that would be the answer, but
you had to think it through for yourself." He reflected a moment: "It's
a pity the European Parliament and the Congress didn't go through the same thought
process. As it is, they've signed a collective death warrant for their financial
sectors. Politicians!" As he talked, I was looking for Mandarin lessons on my Blackberry.
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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