London mayor: 'Don't kill the goose that lays the golden egg'

The AIFM Directive is among proposed regulations that may harm London's position as a financial centre, according to research that has Boris Johnson on the offensive.

London's outspoken mayor, Boris Johnson, is again warning that the European Union's proposed Alternative Investment Fund Mananager Directive, as well as proposed UK tax measures, would have negative consequences on London's prime place at the heart of the private equity industry.

Boris Johnson

“The proposed national and international regulation that the city faces is a reaction to the financial services crisis but we must ensure that we don’t kill the goose that lays the golden egg,” Johnson said. “I will continue to set the benchmark globally, as well as lobby whoever it takes to remove the obstacles that are putting London’s reputation at risk.”

We must ensure that we don’t kill the goose that lays the golden egg.

Boris Johnson

Johnson's comments, made Friday at meeting of his International Business Advisory Council, were spurred by a study produced for the mayor’s office. Consultants Booz and Co. interviewed more than 50 business leaders in London, many of whom expressed concern about the potential damage to London’s financial services industry by the European Commission’s proposed “Directive on Alternative Investment Fund Managers”.

Other recent studies have found that stricter EU oversight would increase compliance costs by billions of euros, cut off investor access to certain funds and force stringent disclosure requirements that would put European funds at a competitive disadvantage to US and Asian funds.

The mayor's study also found that recent regulatory reforms in the UK – including raising the tax rate on capital gains paid by private equity executives – and plans to raise top personal tax rates to 51 percent are reducing London’s competitiveness and causing more companies and individuals to leave the city. Dozens of hedge funds have already moved to Switzerland since the new tax was announced, while other managers may be looking to follow the lead of Terra Firma’s Guy Hands in relocating to jurisdictions like Guernsey and Jersey.

Johnson’s Conservative Party said earlier this month that if it takes power in next year’s elections, it will implement a national insurance tax holiday for new start-ups. While such promises may help with business leaders who have strongly criticised UK reforms such as increasing taxes on non-domiciled residents, a report last month in the Times of London said many UK-based private equity firms are concerned that the EU proposals will still face little resistance even from a Conservative Party government.