No Exodus: Financial Sector Investors Return to London

Overseas investors are moving back into the UK financial services sector, easing fears that London is losing its luster as an international centre for the industry.

Sharon Lorimer

Foreign-owned businesses accounted for 9.1 percent of new authorizations by the Financial Services Authority in the first half of 2010, according to data compiled by IMAS corporate finance advisers.

That is up 40 percent from 2009, when foreign-owned companies accounted for 6.5 percent of new authorizations, as financial services groups worldwide struggled in the aftermath of the financial crisis.

The survey is likely to bolster claims that London remains a crucial centre for the financial services industry.

This is in spite of a crackdown on bankers’ pay and a 50 percent top rate of personal income tax.

Speculation has swirled in recent months about a looming exodus from the City to less regulated business districts in Switzerland and Asia, particularly among the lucrative, highly mobile hedge fund industry.

The IMAS data, however, reveal that since January 2008, 15 Swiss-owned entities – mostly hedge fund managers – have been authorized in the UK by the FSA.

A handful of British hedge fund partnerships are thought to have moved their headquarters offshore in the same period.

In the first half of 2010, 49 foreign-owned businesses were newly authorized by the financial services watchdog, compared with 62 for the whole of 2009, according to IMAS data.

Asset management, hedge funds, private equity and corporate finance are the main sectors of interest for foreign investors.

While US investors still dominate the landscape, accounting for 44 percent of foreign-owned financial services business in the UK, Asian investors are a growing presence, with 16 percent.

Europe’s share of foreign-owned businesses, has fallen 11 percent since January 2008.

Switzerland remains the leading European investor, owning 44 FSA-authorized entities, followed by Germany with 38 and France with 32.

“This demonstrates a shift of power from west to east,” said Bruce McIntyre, a partner at IMAS.

“The data points show that emerging markets are going to be an increasing force in UK financial services.”

The IMAS data are based on an analysis of 953 overseas-owned holding companies in the UK financial services sector with an enterprise value of more than £2m.