The rise of sustainable finance, the impact of Brexit, EU regulation and the fallout of the pandemic all have the potential to shape considerations around alternative fund domicile selection, according to new research published by IFI Global and supported by Jersey Finance.
Based on the views of alternative managers, law firms and advisers in North America, Europe and Australasia, research for the report – The Future of International Fund Domiciliation 2021 - was carried out between October 2020 and February 2021.
Building on an IFI Global report last April, the new report explores how investor and manager attitudes have changed in light of developments in the investment landscape over the past 12 months, including the acceleration of environmental, social and governance (ESG) issues, Brexit and regulation.
Overall, the survey found that investors continue to be the key driver behind domiciliation decisions, and they want to allocate to funds domiciled in well-known jurisdictions with a good reputation.
In addition, however, the survey highlighted differences between UK and US managers' priorities in domicile selection. While most UK managers need funds to be domiciled in jurisdictions that meet a certain regulatory threshold to meet EU investor expectations, US managers prioritise cost considerations and local regulatory requirements.
Other findings
• 69% of interviewees believe ESG considerations will play a growing role in their decision-making, including domiciliation
• Investors are generally more interested in ESG than managers – 100% of investors thought including ESG criteria in the selection of fund jurisdictions and service providers will become more important in the future, compared with 74% of managers, with most of those who said no being based in the US
• 12% of interviewees believe it would be beneficial to have an agreed international standard of regulation for ESG, with most suggesting that jurisdictions should develop their own ESG regulatory standards
• 37% of managers did not see any real opportunity for growth in EU markets. There is much more interest in the US and Asia-Pacific region
• Covid-19 has not impacted fund domiciliation patterns but, should travel restrictions continue beyond this year, it may begin to affect domiciliation
Elliot Refson (pictured), Head of Funds at Jersey Finance, said: “The previous study we supported 12 months ago was clear that investors are key influencers in domiciliation decisions and they prize stability and jurisdictional reputation. While that message remains fundamental to domiciliation today, there is no ignoring how much has happened since the collation of that research.
“As this new analysis shows, the rise of ESG, Brexit and evolving substance demands, coupled with a business environment emerging from an unprecedented pandemic, are new factors that are increasingly shaping domiciliation. And diverging attitudes between North America, Europe and Asia are creating a picture that is more complex than ever.
“The findings of this study provide a valuable insight into the thinking of alternative managers and investors at a time of unprecedented change and underline just how important it is for Jersey, as a forward-thinking specialist fund centre, to stay focused on providing a straightforward, investor-friendly platform.”
• The Future of International Fund Domiciliation 2021 can be downloaded here