Competing for business

Regulators in many traditional fund domiciles have ramped up their efforts to attract new business. A number, including those in Guernsey and Jersey, have introduced simplified fund structures, while others, such as the Irish regulator, have overhauled their limited partnership or tax rules to make them more attractive to private fund managers. This has prompted a shift in where managers choose to domicile their funds over the past year.

Guernsey has become increasingly attractive to US fund managers because it allows them to access European investors without having to deal with the complications of the region’s private fund regulation, data from the jurisdiction’s regulator show.

US funds now account for around 19 percent of all closed-ended vehicles domiciled in the jurisdiction, up by about four percentage points year-on-year, while there was a three percentage point rise in the proportion of open-ended funds from the US, the data show.
“There has been a migration from the British Virgin and Cayman Islands to Guernsey over the past year which can be attributed to the introduction of the Guernsey Private Investment Fund structure, as well the island’s service levels, proximity to London and relationship with the London Stock Exchange,” Kate Clouston, deputy chief executive of Guernsey Finance, tells pfm.

The Guernsey PIF was introduced in November 2016 and is designed to be simpler, cheaper and more flexible than other fund structures; it has a one-day application process and can be either closed- or open-ended.

Brexit effect

The UK has also become less attractive for US fund managers, with a small fall in the proportion of domiciling their funds in the country since the Brexit vote, data from the Securities and Exchange Commission show. In total, 2.6 percent of SEC-registered funds were domiciled in the UK in the 12 months to Q3 2016, but this fell to 1.9 percent in the final three months of the year.

UK-based fund managers are also looking to the continent in order to avoid the marketing and distribution issues that could arise as a result of the UK leaving the EU. For them, Luxembourg has emerged as a lead alternative. Around half of European chief financial officers at a recent conference said they would consider domiciling their fund there, despite considering it the most expensive jurisdiction in which to run a fund.

EQT and BC Partners are among the firms to have made the move to Luxembourg. In May, BC Partners set up a Luxembourg fund so it had an onshore presence in Europe after Brexit.
Ireland has also thrown its hat into the ring, and is hoping to lure private equity managers that may otherwise have domiciled their funds in Luxembourg or Jersey with its revised limited partnership law.

“There has been a large inflow of private equity managers buying real estate during the period post-crash and pre-recovery in Ireland,” says Ray Kelly, a partner in the financial services team at professional services group EisnerAmper Ireland. “This has led the local service providers to develop private equity expertise and we’ve now got the capability to support an expanding private equity market in Ireland.” ?

19%
Funds domiciled in Guernsey run by US managers

57%
European managers who consider Luxembourg to be the most expensive jurisdiction

1.9%
Of US private equity funds are domiciled in the UK