Alt investment fund managers predict growing popularity of IFCs
An overwhelming majority (85 per cent) of alternative fund managers expect to see increased demand for investment vehicles to be based in international financial centres (IFCs) over the coming three to five years, driven by a skills gap and potential tax increases in their local jurisdictions to combat the impact of Covid-19.
That's according to a new global study commissioned by Ocorian, which reveals that, on a regional basis, Asia-based fund managers are the most bullish about the use of IFCs for funds and other investment vehicles (96 per cent), ahead of North America and Africa (both 92 per cent), considerably ahead of Europe, which saw only 60 per cent of investors expect to see an increase.
Local skills shortages in their existing jurisdictions were cited by 81 per cent of respondents as the biggest driver behind the growing popularity of IFCs, closely followed by likely tax increases resulting from the economic impact of Covid-19 (74 per cent). The impact of Brexit (35 per cent) and increasingly complex local regulation (22 per cent) are likely to have much less influence on their choice of IFCs.
Ocorian commissioned independent research among 100 senior-level alternative fund managers including hedge funds, private equity, real estate, venture capital and infrastructure working in Europe, North America, Africa and Asia to assess their operational readiness as they plan their post-Coronavirus pandemic investment strategies.
The study highlights how investor preference is playing a crucial role in encouraging fund managers to redomicile their funds to an IFC, with 71 per cent of respondents citing this factor, ahead of attractive structuring and distribution options (53 per cent and 49 per cent respectively).
According to the study, the three IFCs expected to attract the largest amount of new capital into their tax efficient structures in the coming three to five years are the British Virgin Islands, Barbados and the Cayman Islands, followed by Bahrain, Dublin and Curacao in fourth and joint fifth places respectively.
Simon Burgess, Head of Alternative Investments at Ocorian, says: "International financial centres are already the preferred location for many alternative fund managers but there is every sign that the relationship will become even closer in the years to come as qualities including access to talent and competitive tax rates prove even more compelling. Against a highly competitive fundraising climate it is little surprise that fund managers will switch to a new international domicile that is in keeping with investor preference, too.
“When moving to a different domicile, it is important to do your research and keep abreast of all the regulatory and tax changes. This can be a labour-intensive exercise, but this is where a fund services provider can help, offering on-the-ground expertise. However, careful due diligence of service providers is key, because some are struggling to keep up with changing regimes and are receiving record fines.”
In anticipation of the increased focus on IFCs, three-quarters (72 per cent) of respondents believe that outsourcing will play an even more central role in the coming years. All the fund managers surveyed currently outsource elements of their work to a third party, with accounting (41 per cent), company secretarial support, regulatory reporting and loan agency (all 38 per cent) being the most popular activities.