Sustainable finance to shape fund domiciliation trends

Thursday 22 April 2021

The rise of sustainable finance will be among the key factors playing a part in alternative fund domicile selection in future, according to new research supported by Jersey Finance.

The research for IFI Global’s report – entitled ‘The Future of International Fund Domiciliation 2021’ - was carried out between October 2020 and February 2021 and was based on the views of alternative managers, law firms and advisors from across North America, Europe and Australasia.

Overall, the survey found that investors continue to be the key driver behind domiciliation decisions, and they want to allocate to funds that are domiciled in well-known jurisdictions that have a good reputation. 

It also identified differences in UK and US managers’ priorities in domicile selection. While the research suggested UK managers need funds to be domiciled in jurisdictions that meet a certain regulatory threshold to meet EU investor expectations, US managers said that, aside from familiarity, cost considerations and local regulatory requirements matter most to them. 

The report’s other key findings were:

• 69% of all interviewees believe that ESG (Environmental, Social and Corporate Governance) considerations will play a growing role in their decision-making
• Investors are generally more interested in ESG than managers – 100% of investors thought including ESG criteria in the selection of fund jurisdictions and service providers will become more important in the future, compared to 74% of managers, with most of those who said no being based in the US
• Just 12% of all interviewees believe it would be beneficial for there to be an agreed international standard of regulation for ESG, with most suggesting that jurisdictions should develop their own ESG regulatory standards
• 37% of managers did not see any real opportunity for growth in EU markets. There is much more interest in the US and Asia-Pacific region.
• Covid-19 has not impacted fund domiciliation patterns but, should travel restrictions continue beyond this year, it may very well begin to affect domiciliation

Commenting on the findings, Elliot Refson, Head of Funds at Jersey Finance, said: “The findings of this new study provide a valuable insight into the thinking of alternative managers and investors at a time of unprecedented change and underline just how important it is for Jersey, as a forward-thinking specialist fund centre, to stay focused on providing a straightforward, investor-friendly platform.”

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

Simon Osborn, CEO of IFI Global and author of the report, commented: “ESG, Brexit, EU blacklists, and related issues such as BEPS and demands for yet more substance in all fund jurisdictions, are also having - or threaten to have - an impact on future domiciliation decisions.

"Domiciles need to be alive to these trends if they are to continue to serve the needs of investors globally.”