By Derek Adler (pictured), IFINA – There are many questions being asked by Investment Managers (IMs) today and relatively few satisfactory answers available. For many years IMs have merely had to satisfy the regulatory requirements of the chosen jurisdiction and with limited restrictions have been able to go about their business without too much difficulty.
Along comes the financial crisis in the mid noughties and the situation changed quite dramatically. As always, the pendulum swings from one extreme to the other but in this case the pendulum had clearly not reached its extreme, as several draconian rules were brought out by the very people that had a major part to play in the problems in the first place and caused the pendulum to swing even further.
For many large institutions, the latest rules and regulations will not cause major problems but perhaps the occasional headache. They have the personnel and financial resources to meet the stringent demands being implemented by global regulators and will no doubt deal with everything in their stride. However, the cost of all of these extra rules and regulations will no doubt be passed on to the investor.
Spare a thought for the smaller IM who is restricted on personnel, finance or more likely both. Does the emergence of all the new rules and regulations – such as AIFMD, FACTA – mean that this is the end of the emerging manager and the monopoly by the big institution to control the investment market? The answer is an emphatic no!
As a director of a multi-jurisdictional fund administrator, we are often asked, “where should my fund be domiciled”?
There is no definitive answer as each potential fund has different characteristics. Basic issues include: where is the IM domiciled, where will the fund be marketed and to what type of investor? Depending on certain basic facts, one jurisdiction could be more suitable than another. This was the case up until this year and due to the fact that AIFMD is in now place, created an additional bridge to cross.
For IMs who wish to market in the Americas, the Far East – in effect any continent other than Europe – then all of the current well established jurisdictions are fine. However, should the IM wish to market within the EU then the choice becomes more limited. Luxembourg and Dublin do a fine job of regulating funds but they are predominantly retail and tend to be managed by large institutions.
The problem for smaller IMs is where can they go that is well regulated and provides the EU passport for marketing purposes? The choice has become even more restricted. Thank goodness then for Malta! Not only does Malta provide a well regulated environment but the Maltese speak both Maltese and English despite the fact that it is a sovereign state within the EU. Thus it becomes the gateway of choice for those emerging IMs wishing to promote their funds across Europe.
There are services available to accommodate both the large standalone funds as well as umbrella structures, so that the emerging manager can also compete and get up and running at very competitive pricing. This is a good thing and ensures that there is still a place for the innovative and entrepreneurial IM to develop, despite the initial barriers that appeared to be in place.
