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FUNDS


Funds on the move


Will new legislation in Europe and across the Atlantic mean an influx of funds business to the Channel Islands? Liz Salecka takes a look at how things could turn out


I


NVESTOR demands for improvements to the transparency and supervision of funds, coupled with major new regulatory initiatives, are having a major impact on the funds industry globally, bringing additional costs as well as potential


changes to their geographic mapping. In the US, both the Dodd-Frank Act and FATCA


(see page 35) look set to place major new information reporting requirements on funds that are active in the US. Meanwhile, across Europe, the recently ratified European Union Alternative Investment Fund Managers’ Directive (AIFMD) is expected to see hundreds of fund managers relocate outside Europe to avoid its onerous requirements. According to a recent survey of more than 100 alternative asset fund managers and investors by research company Preqin, 45 per cent consider it likely that EU-based fund managers will relocate as a result of AIFMD’s impact on their costs, profitability and innovation. More than 25 per cent said they expected their own firms to relocate. However, this regulatory shake-up of Europe’s


fund management industry bodes well for the Channel Islands, where managers have a choice when it comes to complying with AIFMD. “It seems that a lot of European fund managers


are thinking about relocating because they don’t want the additional and unnecessary burden of full AIFMD compliance,” explains Nigel Strachan, Chairman of Jersey Funds Association and Managing Director at Ipes, Jersey. “It would be great if they did relocate to Jersey.


Many fund managers have come here because we are so close to the major European financial centres – and have more substance than the Caribbean – and it is very


straightforward to market funds from here into Europe under private placement rules.” He adds that in 2008/9, of the €198bn raised by


European fund managers, €144bn was raised by funds based in the Channel Islands. “Much will depend on the business model of the


fund concerned, and if they don’t actively need to market themselves in the EU, they may be better off outside the EU,” adds Jarrod Cowley-Grimmond, Director of Finance Sector Development in the Commerce and Employment Department at the States of Guernsey. “The Channel Islands are well placed to attract fund


managers – not only because we can use the private placement regime, but we will also be able to apply for third-country passports (which indicate AIFMD compliance) as and when they become available.” However, the EU has not yet published a full and final


version of AIFMD, and there is still uncertainty as to how many EU-based managers may relocate, and whether they will opt for full or partial relocation. At present, AIFMD is at the level-two stage with implementation measures (currently being drafted by the European Commission) anticipated in December.


Two-pronged approach Michel Davy, Managing Director of Ipes, Guernsey, believes there is a strong chance that certain European fund management groups will set up parallel structures – in other words, have a presence in an onshore centre and one in an offshore centre – to service different customer groups. They could, for example, stay in Europe and comply with AIFMD to service EU investors who want this, but set up an offshore presence in a non-EU jurisdiction,


April/May 2011 businesslife.co 31 ➔


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