Private equity and private funds have become attractive avenues for asset managers, the fund advisory industry, family offices and endowment funds in recent years. In Hong Kong, the local asset management and fund advisory industry has flourished, and the authorities are now proposing to widen tax breaks to include hedge and private equity funds that are domiciled here to help the sector develop further.
The global race for finding suitable domiciles for setting up funds, which comply with different regulatory regimes, has become intense. The need for using transparent, qualified international financial centres to support fund set-up is becoming important as a strong fund foundation would help attract investors and support a smooth regulatory approval process in key financial markets.
In 2018, there was a global trend showing investment funds were moving to take up more private assets as fewer companies go public and start-ups stay unlisted for longer. According to figures from Preqin, total private capital fund-raising grew by 10.4% in 2017 to reach the US$800 billion level, demonstrating how attractive the industry is for investors. Within the overall private capital market, both private equity and private debt witnessed double-digit growth in fundraising in 2017.
Places like Hong Kong need stable, transparent partners if such numbers are to continue to grow.
There are three key areas which fund managers and advisors should focus on when they identify international platforms to support their fund set-up and registration:
1. Tax simplicity and certainty
It is important for financial centres or jurisdictions to be able to offer a simple and uncontroversial tax neutral regime, with no tax leakage. Jurisdictions which can offer lower regulatory application and annual fees, greater tax simplicity and an ability to market funds to global investors are better able to attract funds from different markets around the world.
2. Product optionality
In view of the wide variety of fund structures available in the market, it’s crucial for international financial centres to have a flexible regulatory system to support funds’ ability to select the right types of model, including closed or open-ended funds or hybrids, blind pool funds, co-investment structures and managed accounts. Most importantly, the set-up of the fund model should accommodate an appropriate regulatory environment.
3. Speed to market Having flexible fund structuring with faster authorisation processes allows fund products to be able to better capture market opportunities. For some jurisdictions, authorisations can be granted in days for smaller and more lightly-regulated structures, and in weeks (not months) for closely-regulated structures. This requires jurisdictions to have a mature legal environment to speed up the approval process on fund registration.
By Joe Moynihan, CEO, Jersey Finance