A guide to the most popular jurisdictions for alternative funds

Eighty years ago, Judy Garland as Dorothy in The Wizard of Oz coined the immortal phrase, “There’s no place like home”. Today, the options of “home” for alternative fund managers in domiciling fund structures are immense.

While some alternative fund managers strongly believe that there is no place like their current fund domicile, the landscape is shifting, driven by regulatory, tax and structural changes. It is more important than ever to keep abreast of the latest trends influencing the choices among global fund domiciles.

We are in the midst of an exciting era in alternative fund investing, with alternative fund assets forecast to exceed 60% compound growth between 2017 and 2023 to US$14 trillion. The exponential growth of the industry is supported by these positive forecasts from data provider Preqin and industry participants are equally bullish.

As alternative investing expands globally, the decision as to where to domicile an alternative fund will become more complicated in view of a number of relatively new factors such as Brexit and Base Erosion and Profit Shifting (BEPS), as well as the global drive for more substance and transparency.

Selecting a fund domicile is an essential first step for any fund manager. This is why IQ-EQ wishes to provide fund managers with a composite overview of the most popular jurisdictions for alternative funds to guide them in this crucial selection process.

Indeed, while jurisdictions such as Cayman, Luxembourg, Singapore and Delaware have gained ground as domiciles for alternative funds, going forward it appears increasingly clear to market observers that factors such as Brexit, BEPS and substance questions are likely to influence managers’ domiciliation decision-making in the future.

The effect of new regulations is expected to be far reaching as all affected fund managers will be required to demonstrate that they have adequate substance from 2019 onwards. Moreover, legislation introducing economic substance requirements for companies domiciled offshore has now been introduced in multiple jurisdictions including Bermuda, the Cayman Islands, Guernsey, Jersey and the Isle of Man.

The future will continue to reflect history. As is the case today, no jurisdiction will be able to lay claim to being the right home for every alternative fund. Domicile decision-making will likely continue to be influenced by many of the same factors as in the past such as the reputation of a jurisdiction, investor sentiment, set-up timelines and process, regulations, costs and quality of the service providers.

The one key difference though is that, going forward, Brexit, BEPS and substance questions will strongly influence the domiciliation decision-making process, culminating in a challenging yet exciting future for alternative funds. Or to paraphrase Dorothy, I’ve a feeling that we’re not only offshore any more.

To download a copy of the IQ-EQ Fund Domicilation Report, simply complete the form on the right of this page. We would like to thank IFI Global for all their support in this endeavour, and we hope that alternative fund managers will find the report useful.