As the recession wanes, Nova Scotia’s drive to expand its financial services sector is ramping up.

One success story is Montreal-based Castle Hall Alternatives Inc., a leading provider of operational due diligence for hedge funds, which recently set up an office in Halifax. Expect more firms to follow, says Stephen Lund, president and CEO of Nova Scotia Business Inc. , the province’s business development agency.

As the economy dipped, he notes, much of the financial services sector was hit. “We were lucky to have survived this pretty well intact,” he adds. “Now we are in growth mode.”

One of the big attractions of Halifax for financial services firms, business executives say, is the labour market and the access to young, educated individuals.

“It comes down to the labour pool,” says Kaela Keen, head of the Halifax office for Marsh Canada Ltd., the Canadian operating company of Marsh Inc., a unit of New York-based Marsh & McLennan Cos. Inc. “We need to do a high level of recruiting. Halifax offers ample opportunity for designated accounting individuals and others.”

She notes that the recession has actually sweetened the pot of potential hires. “The economic downturn has a positive impact on our Halifax office,” she says. “Many companies have had hiring or promotional freezes over the past few years. There were more candidates coming to us.”

The right people are also essential to Castle Hall’s success, notes Gillian Scott, managing director of the firm: “We see a great strategic benefit in growing our business in Nova Scotia. Castle Hall reviews several hundred hedge funds per year, driving our need for skilled and flexible employees.

“Investors are looking to partner with companies that can offer a stable team of knowledgeable professionals,” she adds. “And that talent pool is available to us in Nova Scotia.”

In Castle Hall’s case, there was another reason for opening its Halifax office. Both Scott and Lori Barton — another managing director — have roots on the East Coast and wanted to return. “Our clients are international,” says Scott. “We could set up our business anywhere. [One] reason we’re here is because we wanted to move back home.”

Other reasons financial services firms are opting to open shop in Halifax include its central location (close to the northeastern U.S. and Europe) and its quality of life. The December 2009 issue of Canadian Imperial Bank of Commerce’s Metro Monitor publication ranked Halifax as No. 1 — for the first time — in economic momentum among Canadian cities.

“The nation’s leading ranking by Halifax was achieved despite the fact that the city did not lead the nation in any of our macro categories,” notes Benjamin Tal, senior economist with CIBC and author of the Monitor, “reflecting its relatively diversified sources of economic growth and reduced vulnerability to economic shocks.”

Nova Scotia is also prepared to ante up to win business. In the case of Castle Hall, the province is providing a six-year payroll rebate to a maximum of $1.4 million to help the firm offset the costs associated with quickly expanding its operations. (The payroll rebate is a return, usually between 5% and 10%, of a company’s gross payroll taxes, generally paid out annually.) In addition, Castle Hall will receive up to $150,000 through Nova Scotia’s Department of Economic and Rural Development for training.

The money, says Scott, is “certainly incentive to grow.” In and of itself, however, it’s not enough to sway firms to locate to Nova Scotia.

“The government support is certainly valued, but the prime reason to be in Halifax is the availability of skilled employees at a reasonable cost compared with major international financial centres,” says John Landry, who manages human resources for Flagstone Management Services (Halifax) Ltd., a subsidiary of Bermuda-based Flagstone Reinsurance Holdings Ltd. Flagstone’s Halifax office opened in 2006.

That’s good news for the provincial government. Post-recession Nova Scotia will be unlikely to compete head to head with larger provinces looking to attract financial services firms to their communities.

“The market has changed over the past six months,” says Lund. “Many jurisdictions are looking to jump-start this sector. Ontario and Quebec have become very aggressive in offering incentives. If anyone is coming just for the money, they are better off to go to Quebec. We just don’t have the money to compete with those bigger centres.”