The world is shrinking

The world is flat for the private funds industry – which is why offshore financial centers are competing for market share in new lands.

As a greater share of economic activity shifts to Asia, Latin America and Africa, offshore financial centers sense an opportunity to win new business by showcasing their sophisticated vehicles and legal regimes to emerging market fund managers.

This development bodes well for the industry’s global growth. Like their counterparts in the West, emerging market fund managers will need nimble cross-border fund structures that can simultaneously accommodate a diverse population of LPs – from tax exempt to foreign, from private individuals to public pension funds. That’s becoming even more true as a growing number of emerging market GPs look to diversify their LP base beyond their local geography.

To get a better sense of what’s happening, earlier this month Guernsey Finance sent a team of local regulators, policymakers and funds experts to China to see what opportunities exist there for the island’s finance industry. The trip followed similar visits to Brazil and Moscow, where Guernsey officials discussed how its long-established funds regime might service the growing population of fund managers in Latin America, Russia and elsewhere.

And the competition for new business will be tough. “A lot of domiciles benchmark themselves with each other – so they know good bits to bad bits, and each jurisdiction catches up with each other,” notes James Mulholland, an offshore funds partner with law firm Carey Olsen.

But ultimately, that competition should result in more sophisticated fund regimes for GPs across the globe. Indeed, keen not to lose tax revenue, onshore governments are competing for fund managers’ attention as well: Shanghai recently sent a delegation to Greenwich, Connecticut to learn how the city developed its fund sector. Learning best practices developed over decades in the West is one reason why places like China and Brazil are welcoming delegates from offshore domiciles.

It’s impossible to say what types of legal, tax and regulatory rules will emerge for GPs in countries with still nascent private equity industries. But the fact that places like Cayman, Jersey and other popular private equity domiciles with sophisticated fund regimes in place are travelling the world to show how it can be done is a promising sign.

For more on private equity domiciles, and the factors to consider when choosing a locale for your next fund, be sure to read the November edition of PE Manager, which includes our annual Fund Domiciles Guide.