Business Intelligence Middle East  – As the eye-popping profits of hedge funds dry up amid the financial crisis, the industry looks set to shrink substantially in its European headquarters of London over the next year.

Discretion is everything in London’s exclusive Mayfair district which is quietly home to a third of the world’s hedge funds, the highly speculative investment vehicles often blamed when markets plunge.

A small brass plaque on a door tucked in between Chanel and Versace boutiques is often the only sign of their existence. But those highly polished doors cannot hold back the same chaos that has swept through the rest of the finance world.

John Godden, CEO at hedge fund consultancy IGS Group, is one of the rare figures in a secretive world to speak openly about the scale of the problems.

He was in the process of drawing up next year’s aims for his group when US investment bank Lehman Brothers collapsed in September, and panic buttons were pressed all over the financial world.

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Business Intelligence Middle East  – International Tax lawyers are urging private-equity and hedge-fund clients to restructure their partnerships so they can sidestep the higher taxes that president-elect Barack Obama has vowed to impose on their profits.

Obama’s promise to revive a failed 2007 bill forcing executives to pay rates of 35% or more instead of the 15% capital-gains tax has prompted lawyers to advise the firms to take measures such as setting up offshore entities. That would help circumvent higher taxes on so-called carried- interest profits that executives at the firms typically earn.

The lawyers say they are pressing their clients to act before the year’s end on the assumption that any law or regulatory change won’t apply before 2009.

“If you wait to do it, then to unwind or restructure later will be very difficult and trigger significant tax penalties,” said Mike Kosnitzky, who heads Boies Schiller & Flexner’s tax practice in New York and is advising clients.

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