The Future of International Fund Domiciliation 2021

In view of the evolving regulatory landscape and market barriers to entry, it has become more important than ever for fund managers to consider domiciliation.

In 2021, we tasked IFI Global with creating a report on the future of international fund domiciliation. This explored how investor and manager attitudes to domiciliation have changed over the past few years. The study focused on the views of alternative fund managers, law firms and advisors from across North America, Europe and Australasia.

Key conclusions

• Investors said that they want to allocate to funds that are domiciled in well-known jurisdictions that have a good reputation, legal and regulatory framework, solid infrastructure and notable expertise.
• There were differences in what many UK and US managers considered to be their priorities in terms of domicile selection.
• The vast majority of US managers and advisors surveyed said that what matters most to them in their domicile selection, aside from familiarity, are cost considerations and local regulatory requirements.
• The consequences for future fund domiciliation patterns of the UK’s departure from the EU were only just beginning at the time that the research was carried out (2021). Many UK-based interviewees were pessimistic.

The research revealed that there have been many factors that have influenced fund domiciliation patterns in recent years. These include:

1. ESG

The sustainable finance industry is growing and, at the time of the research, it was thought to be worth around £30 trillion globally. Most investors and managers surveyed believed that sustainability considerations would play an increasingly significant role in their decision making.

Outside the EU, the idea of an all-encompassing approach to the regulation of ESG, like the EU’s mandatory disclosure obligation, the Sustainable Finance Disclosure Regulation (SFDR), was not popular among those questioned. Therefore, the majority of survey respondents, including all of those in the US, believed regulations should be tailored to local conditions, giving investors more options when considering fund domiciliation.

2. Brexit

At the time of this research, the industry was beginning to experience the implications of a Brexit agreement and managers were considering their fund domicile options. In particular, some respondents felt that post-Brexit opportunities might look considerably different to previous private placement or reverse solicitation arrangements. Some UK managers feared that private placement and reverse solicitation arrangements would become difficult in future and might even close down.

3. Regulation

For the US respondents to this survey, at the time of the research the increasing substance and regulatory requirements that had been imposed upon what were traditionally viewed as low-cost jurisdictions, had meant that some US fund managers had begun to look for alternatives.
Investors do not like surprises when it comes to fund domiciliation. According to the research, it’s important that funds are domiciled in well-known jurisdictions that have a good reputation and legal and regulatory framework.

4. Domiciliation

The study found that investors generally do not have favoured jurisdictions. However, they want to allocate to funds that are domiciled in well-known jurisdictions that have a good reputation, legal and regulatory framework, solid infrastructure and considerable expertise. There are differences in what many UK and US fund managers would consider to be their priorities in terms of domicile selection. This has a lot to do with investors. For example, most UK fund managers interviewed had European investors who need funds to be domiciled somewhere that meets a certain regulatory threshold. In contrast, most US fund managers and their advisors appear to be less influenced by their investors in the same way.

Find out more about the ease and appeal of using Jersey for funds: