The introduction of global regulatory initiatives is set to challenge traditional fund structuring models, make fund domiciliation much more complex, and heighten the importance of investor buy-in, according to new research published this month by IFI Global and supported by Jersey Finance.
Based on the views of alternative managers, law firms, advisors and some of the world’s largest investors in alternatives, the research, which was carried out between October 2019 and January 2020*, seeks to explore the changing face of fund domiciliation and the drivers behind domicile decisions, given the pace of change in the regulatory landscape.
Overall, the survey found that key issues including Brexit, BEPS, substance and transparency have shot up the agenda when it comes to domiciliation and are themes that are likely to influence decision making for some years to come. Amongst its other findings were:
- the most important determinant in domicile selection is whether a jurisdiction is well known and respected by investors that are being targeted by a fund manager.
- investors want to allocate to funds that are domiciled in jurisdictions with good infrastructure, considerable local expertise and knowledge of the asset class in question along with well-established regulations.
- there is some investor dissatisfaction at recent increases in costs in international fund jurisdictions as a whole but especially those in the EU – a common complaint is that the drive to develop local substance has increased costs for no particular benefit to investors.
- BEPS will impact all domiciles with alternatives, especially jurisdictions in the EU whose funds rely upon treaties for their tax exemptions.
- alternative investing is expected to continue to grow in the long-term, with jurisdictions that have the skills and experience in domiciling and servicing alternative funds expected to facilitate that growth.
Whilst the study was undertaken prior to the coronavirus pandemic, Elliot Refson, Director of Funds at Jersey Finance, believes its findings are more pertinent than ever:
“It’s clear that, with the fund domiciliation landscape becoming more competitive and more complicated than ever, IFCs need to be alive to key trends and have a thorough understanding of what is driving the long-term future of fund structuring, so they can be equipped to continue to support the alternative fund management community going forward.
“Investor buy-in is absolutely vital. Investors want to do business through familiar, robust, high quality and cost-effective environments that are tried and tested and offer no surprises. In a world that was already defined by uncertainty and volatility and is even more so as a result of the COVID-19 outbreak, managers and investors will be drawn towards stability and certainty. Those IFCs that can focus on that, demonstrate real resilience even in times of mass upheaval, and offer a platform of substance built on expertise, specialist skills, compliance with international standards, innovative solutions and consistent levels of good service will be the winners – and Jersey ticks those boxes.”
The research, entitled ‘The Future of International Fund Domiciliation’, can be viewed and downloaded here https://www.jerseyfinance.je/our-work/the-future-of-international-fund-domiciliation/.
*the research was conducted prior to the COVID-19 pandemic.