There are many reasons why offshore centres were set up, including tax advantages. But today, the phrase „offshore“ has become synonymous with tax avoidance, insufficient corporate governance and political instability. Furthermore: Many of the former offshore advantages are no longer true. The Alternative Investment Managers Directive (AIFMD) has levelled the playing field between onshore and offshore fund domiciles with asset class flexibility. Therefore many asset managers now look to move their offshore operations onshore.
Navigating fund domiciles at times of uncertainty
At the same time, asset managers are seeking to increase their distribution networks into Europe. Two primary destinations of choice are Ireland and Luxembourg. Both have their benefits, such as the RAIF (Reserved Alternative Investment Fund) in Luxembourg and Ireland’s QIAIF (Qualifying Investor Alternative Investment Fund). According to figures from the Association of the Luxembourg Fund Industry (ALFI), fund managers from the US and the UK are increasingly domiciling their funds in the Grand Duchy.
While there have been earlier this year EUR 559 billion in alternative assets under management in Luxembourg, Ireland was not far behind with EUR 443 billion in alternative assets under management according to figures from the European Fund and Asset Management Association (EFAMA).
Aside from the successful move into alternatives, Luxembourg and Ireland both dominate the global UCITS brand, with assets under management of EUR 2.8 trillion and EUR 1.4 trillion respectively.
While the multi-lingual environment of Luxembourg makes it attractive to managers who want to sell their products across continental Europe, Ireland attracts money market managers, the exchange-traded fund business and passive structures, especially from the US.
Brexit - A source of uncertainty
Now, after the UK voted to leave the EU, there is uncertainty in the market. What is the appropriate model going forward? If the UK loses its passporting rights, asset managers will be looking at which member state would be the best to operate from. One problem of a UK asset manager setting up their own infrastructure in an EU member state is the costs involved in doing so. Alternatively, there is the opportunity to look for suitable Management Companies to partner with, engage in strategic alliances or joint ventures with EU asset managers, or even the possibility of M&A activity.