Future of fund domiciliation research published

Friday 01 May 2020

The introduction of global regulatory initiatives is set to challenge traditional fund structuring, making fund domiciliation much more complex, new research has shown.

Based on the views of alternative managers, law firms, advisors and some of the world’s largest investors in alternatives, IFI Global's research - which was carried out between October 2019 and January 2020 - aimed to explore what motivates domicile decisions amid changing regulations.

Overall, the survey found that key issues, such as 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 in the years to come.

It also found that:

• A jurisdiction's reputation is the most important determinant in domicile selection.
• 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.
• Some investors are disappointed with 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 will likely 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.

Although the study was carried out before the covid-19 outbreak, Jersey Finance Funds Director Elliot Refson believes its findings are more pertinent than ever.

Pictured: Elliot Refson, Director of Funds at Jersey Finance.

“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," he said.

“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.”