Financial Times: If Britain goes - City divided on UK relationship with EU

08 February 2015

Investment banks are pushing for Britain to stay in the EU while some hedge funds are campaigning for an exit in a fiercely contested debate ahead of the general election in May.

As Downing Street explores whether it can bring forward a referendum on Britain’s EU membership from 2017 to 2016, bankers are adamant that departure would seriously threaten London’s future as a financial centre. 

The financial services industry contributes a fifth of the UK’s annual economic output and had a £19.1bn trade surplus with the EU in 2013. 

Hedge funds, meanwhile, are sharply critical of what they say is a proliferation of expensive and time consuming regulation that has come from Brussels.

The Financial Times has spoken to some of the City’s top financiers as part of a series examining the potential consequences should Britain exit the EU.

Crispin Odey, founder of Odey Asset Management, told the FT: “We joined an economic union, not a political union. We don’t want to be part of a more consolidated and federal Europe.”

“We are a massively important trading counterparty with Europe and my sense is that we’d be able to negotiate a pretty good deal.” Last year, Mr Odey threw a party to introduce Ukip leader Nigel Farage to potential donors.

Another veteran UK hedge fund manager said: “There is no benefit to our business from being in the EU but there’s significant cost and uncertainty. We’d be better off out.”

Even some stalwart pro Europeans are sounding more sceptical. Paul Marshall is co-founder of $18bn hedge fund Marshall Wace. He is a long-time supporter of the traditionally pro-EU Liberal Democrat party but lately he has expressed concerns about Europe’s economic outlook and its regulatory burdens.

Although 15 per cent of the $2.85tn of hedge fund assets are run out of the UK, most UK-based funds raise money outside the EU. They say they have been worn down by the Alternative Investment Fund Managers Directive, which they see as expensive and time-consuming.

These hedge fund views are at odds with London’s investment banking industry, which stands to lose the most from leaving the EU. Three quarters of European capital markets and investment banking revenue is transacted in the UK, according to Oliver Wyman, the management consultancy. The sector employs more than 150,000 people on the sellside alone — many of them European nationals.

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