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ing the environment through tax reforms and structures . “ The UK faces a real challenge to establish itself as a cross-border fund domicile that can compete with the established hubs of Ireland or Luxembourg ,” says Sean Tuffy , head of regulatory intelligence , securities services at Citi . “ As the EU considers tightening delegation rules for European funds , there is an opportunity to create a framework that could be attractive to asset managers selling funds in the UK . In addition , there could be an opportunity to look at the private or alterative fund space where the AIFMD has yet to fully develop an international brand comparable to UCITS . In either case , change won ’ t happen overnight but having the right framework in place is critical .” In addition to attracting private or alternative funds , as the UK steps away from the single market , there could be potential to establish a regime with advantages around tax rates or environmental , social and governance ( ESG ) incentives . Many believe there could be opportunities in luring in alternatives funds , ETFs and – who knows – maybe even crypto-dedicated funds . “ There ’ s a lot of things for the UK to figure out but there could be a lot of opportunities for them ,” explains David Barry , global head of open-ended funds at Apex Group . “ When you look at jurisdictions , there are various elements a manager considers : reputation , government stability , the perception of the jurisdiction and the tax regime . That ’ s been traditionally a bit of deterrent on UK structures . [ But ] the UK has a good opportunity to create a structure that can be very advantageous to investors and managers .” At present , it ’ s difficult to imagine the UK being competitive in attracting funds that want to market into the single market as they would need to set up an additional EU-domiciled fund on top of their UK location . Many UK funds will have already positioned themselves prior
“ International distribution has not always been a focus for UK retail funds even before Brexit came to the table … the UK is a popular destination for overseas funds to sell to , but it ’ s not really the same the other way around .”
MATT ADAMS , HEAD OF ASSET MANAGER CLIENT LINE , UK MEA , BNP
PARIBAS SECURITIES SERVICES
to Brexit , and for others , they may be satisfied with UK buyers , according to Matt Adams , head of asset manager client line , UK MEA , BNP Paribas Securities Services . “ International distribution has not always been a focus for UK retail funds even before Brexit came to the table ,” says Adams . “ The stats from ALFI show that for leading fund domiciles like Ireland and Luxembourg , the UK actually features very strongly as a destination for registrations and therefore investor interest , effectively . “ For Ireland , the UK is ranked number one , and in Luxembourg the UK ranks fifth , I believe . The UK is a popular destination for overseas funds to sell to , but it ’ s not really the same the other way around . UK fund buyers buy UK funds , but the UK doesn ’ t fare so well selling UK domiciled funds across the water .” The government consultation will remain open until 20 April 2021 , giving the
“ The UK faces a real challenge to establish itself as a cross-border fund domicile that can compete with the established hubs of Ireland or Luxembourg ,”
SEAN TUFFY , HEAD OF REGULATORY INTELLIGENCE , SECURITIES SERVICES , CITI
UK some time to consider its future , and also take into consideration the upcoming AIFMD review in Europe . Adams points out that the other area of opportunity is around a new fund structure that was proposed as part of the Investment Association ’ s strategy in the form of the UK long-term asset fund ( LTAF ), first proposed in June 2019 . “ The idea of this [ LTAF ] fund is to address the liquidity mismatch between the daily dealing that we see already in the market that we see invest in very illiquid assets , greater flexibility around redemption opportunities and obviously we ’ re seen issues around this space in the last couple of years with funds being gated , liquidity issues , Woodford coming to the fore ,” Adams explains . “ The chancellor is behind this , we could see that LTAF fund launch by the end of this year , so there is some support . The contrary view is that the UK already has some well-established alternatives to the traditional open ended mutual fund which is the investment trust which has been around for 100 years and this offers that daily liquidity .”
Ireland makes its move The ascent of Ireland as a European fund domicile has been well documented in recent years , but a move in December marked a major shift for its future with regards to private funds . The country passed a landmark bill that would make it easier for investment managers to set up private funds in a play that could create thousands of jobs and new business for service providers . The Investment Limited Partnerships ( Amendment ) Bill 2020 , passed in the Irish Dáil , is set to accelerate the Irish fund industry by providing greater flexibility for firms to set up private equity , private debt , venture capital , infrastructure , renewable energy and real estate funds . The passing of the bill is also expected to create up to 3,000 jobs over the next five years , while also set to attract up to ¤ 20 billion per year in global private capital . “ It is a game changer for Ireland , particularly on the private equity side ,” adds Barry . “ They amended the LP act which is a structure that commonly used in the private equity world , we see it in the US , the UK and obviously in Luxembourg . Traditionally Ireland has been losing
36 Global Custodian Spring 2021