Via Financial Times

The Tokyo government has embarked on a discreet bid to woo hedge funds away from crisis-hit Hong Kong, dispatching a delegation to the city this week on a 48-hour mission to persuade money managers to relocate to the Japanese capital.

Government officials have organised a flurry of meetings between finance executives from Japan and dozens of Hong Kong hedge funds in an effort that has the unofficial but explicit blessing of Tokyo governor Yuriko Koike, according to people familiar with the lobbying push.

Wary of being seen as exploiting unrest in Hong Kong, the group has kept its composition and itinerary quiet, but the Tokyo government is expected to make a report public.

The delegation from Japan is an early warning sign that months of unrest have thrown into doubt Hong Kong’s future as a financial hub, with Asian rivals sensing an opportunity to attract business. 

With fewer employees, hedge funds and smaller investment managers are more mobile than international banks. But they still pack a punch, with the Tokyo delegation targeting several hedge funds with more than $1bn in assets under management.

Executives at one fund in Hong Kong said they felt in the middle of a tug of war between Tokyo and Singapore. Both cities have presented themselves as safer alternatives to Hong Kong, which has experienced months of disruption and sometimes violent protests against the government.

The Tokyo delegation’s first calls will be to funds that relocated to Hong Kong from Japan either after the 2008 financial crisis or after the 2011 earthquake.

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The push by Tokyo is based around Japan’s “bastion of stability” image as it attempts to persuade funds to relocate to a city that, following a recent construction boom, now has ample office space.

People involved in the bid believe that hedge funds considering relocating from Hong Kong will probably make the decision after bonuses are paid in December, but fear low-tax Singapore has the advantage.

“We’re in a crucial period right now because this is when institutions are working out their budget and headcount for next year,” said Veronique Lafon-Vinais, a former banker and a business professor at the Hong Kong University of Science and Technology. “Will the protests have an impact on employment? For sure.”

Tokyo’s pitch includes government subsidies to help lower the costs of back-office outsourcing and what it claims is a regional concentration of expert buyside traders.

Prime brokerages of global banks have recently held meetings with groups of investment managers to provide information on the steps for relocating to or opening offices in Singapore and Tokyo.

Major Domus, a multifamily office, has already made a move to guarantee its prime broking services are safe from the turmoil in Hong Kong. 

Marc Geary, Major Domus’s managing director, said the group was finalising a back-up prime broker based in Singapore.

“It’s not a fear of a run on the bank,” Mr Geary said. “It’s a more structural and operational concern: a fear of the risk of systematic poor service or poor execution given staff and other resources constraints as a result of the working conditions in Hong Kong.”

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