Private Funds: Where and How? A comparative analysis of the major private fund jurisdictions

As fund council, one of the initial tasks on a fund-raise is usually to help the sponsor select the optimal place to establish a fund’s component vehicles. In the case of a master/feeder or parallel fund structure, this may involve multiple jurisdictions. A wide range of factors have a bearing on whether a particular jurisdiction would be appropriate, some of which will be much more relevant than others in any particular case. These include:

  • Likely preferences of the target investors, including their familiarity with the jurisdiction and perceptions of it.
  • Marketability of funds in that jurisdiction (from a regulatory perspective), including the availability of a ‘marketing passport’ (for example, funds domiciled outside the EU are currently not able to obtain the Alternative Investment Fund Managers Directive (AIFMD) marketing passport).
  • Target investor tax and/or regulatory issues with the jurisdiction.
  • Familiarity of the regulator and service providers in the jurisdiction with the investment strategy or asset class.
  • Degree of local regulation; accessibility and approach of local regulator.
  • Laws on confidentiality, commercial lending, banking, bankruptcy, enforcement, foreign exchange controls or other matters relevant to the strategy of the fund.
  • Local tax treatment of the fund and, if relevant, ease of access to double tax treaties relevant to the fund’s investment strategy.
  • The choice, quality and cost of required local service providers.
  • Convenience for holding board meetings.
  • Organisation for Economic Co-operation and Development (OECD) status of the jurisdiction, which can be important for some investors and marketing regimes.
  • Availability of, and ability to obtain, a listing on a stock exchange, if desired (not necessarily in the place of establishment).
  • The speed and cost of local incorporation, licensing and approval processes.
  • Stability and predictability of the political system, currency and local infrastructure.
  • Whether the choice of fund jurisdiction will enhance the sponsor’s ability to pursue its investment program (for example, in the context of private lending strategies, certain European jurisdictions are much more accommodating towards loans made by EU domiciled funds than funds from non-EU domiciles).
  • Any existing links between the sponsor and the jurisdiction, including any existing substance or employees that the sponsor has in the jurisdiction; any existing relationships with service providers, directors, etc (this can be helpful in terms of both efficiency and tax planning).
  • The availability of, and preferences as to, directors to sit on the fund board, or the board of a general partner or investment holding entities.
  • The choice of legal vehicles available in the jurisdiction and their suitability for the asset class and the desired fund-raise.
  • The popularity of the jurisdiction relative to others (in general, sponsors will want to follow a well-trodden path rather than blaze a trail; preferring to distinguish themselves on factors other than fund domicile).
  • The legal system of the jurisdiction, including the familiarity of the commercial courts with private funds matters and the speed, accessibility and ease of access to the courts or enforcement (which can vary considerably among jurisdictions).

As it is unlikely that any single jurisdiction will fully satisfy all determining criteria, the process usually involves weighing the most relevant factors in the balance, and either selecting a single fund jurisdiction or creating a parallel or master/feeder structure that allows different jurisdictions to be offered.

It may be necessary, or otherwise appropriate, to establish a local management company to operate the fund structure. That local company may take investment decisions locally, or may delegate investment decisions back to an investment manager or sub-adviser based elsewhere. Each chapter gives some consideration to this aspect.

Private Funds: Where and How summarises the key features of some of the fund domiciles that we see in most common use: Bermuda, British Virgin Islands, Cayman Islands, France, Germany, Guernsey, Hong Kong, Ireland, Italy, Jersey, Luxembourg, Malta, Singapore, UAE, UK and USA (Delaware). The information contained herein is provided for general information only and is not legal advice and should not be relied upon as such.

Dechert LLP

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