Adapting to a changing environment
By Simon Gray – The past few years of economic and financial crisis have brought significant change to both the traditional and alternative fund sectors, and nowhere more than in the domiciles chosen by or for fund managers, service providers and investment vehicles. A number of established fund jurisdictions are coming under pressure, whether economic, regulatory or legal, just as other financial centres position themselves to take advantages of new opportunities.
The alternative fund industry in particular is in the process of rethinking various aspects of its structure as it seeks to adapt to a still troubled economic environment, hesitation and risk aversion on the part of traditional investors, what has often been described as a tsunami of new regulation, and most of all pressure on costs.
Different jurisdictions have responded in different ways to the continuing crisis. However, those that seem to be adapting best to the current environment have been characterised by their readiness to update their legislation, rulebooks and product ranges to accommodate the latest requirements of financial services players as well as embracing wholeheartedly the new international consensus on tax transparency and regulatory oversight.
In some areas of the global financial industry, size has been a beneficial quality in coming through the crisis, but certainly not in all. Flexibility, solid industry expertise and commitment from the political authorities may often be more useful characteristics at a time when the ability to respond rapidly to changing conditions is required. Larger jurisdictions, by contrast, may see competing claims on government priorities and legislative attention.
It should be no surprise that jurisdictions such as the Bahamas and the British Virgin Islands, which have decades of experience and success in the financial services industry, should continue to thrive in the current conditions. Both have turned innovation to their advantage in offering the fund industry products and opportunities unavailable elsewhere.
The recent introduction of the BVI approved manager regime, the extension of the Bahamas’ range of SMART Fund models and the launch of the Bahamas Executive Entity are all initiatives designed to capitalise on their respective jurisdictions’ existing strengths and the needs of the industry members that use them.
Malta has also been steadily building up its reputation as a fund domicile and servicing centre, taking on bigger and longer-established rivals to create pools of expertise in both UCITS and alternative fund business – as well as other areas of financial services business, including insurance.
Like Ireland a couple of decades ago, Malta has drawn on a combination of ingenuity, flexibility, a well-educated workforce, vigorous and enthusiastic marketing and, not least, a regulator renowned for openness and accessibility as well as robust enforcement of its standards. Today the Mediterranean island nation has emerged as a leading fund centre for the AIFMD era.
Meanwhile, Switzerland’s Italian-speaking canton of Ticino is carving out its own reputation for expertise in a country with a long-standing financial services vocation. Welcoming a broad range of hedge fund managers and service providers, and reaching out to markets across the border and well beyond, Lugano is emerging as a financial hub that encapsulates Switzerland’s excellence in investment and fund management in a global marketplace where ongoing change continues to open up new opportunities.
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