1 Marketing dos and don’ts
Stateside, a new Securities and Exchange Commission regulation has introduced a broader definition on what constitutes marketing and advertising, which offers private fund managers “more space to innovate” on how they communicate product offerings to investors. With guidelines rather than rigid rules, “private funds might feel a little more freedom to experiment in the soft science of the sale,” explains Bill Myers, a reporter on affiliate title Regulatory Compliance Watch. The downside is that less rigid rules could create more gray areas in interpretation, putting the onus firmly on compliance experts to ensure firms remain on the right side of the SEC.
The EU’s Sustainable Finance Disclosure Regulation came into force in March and any manager, wherever they happen to be in the world, must comply with it if they want to market funds to investors in the continent. The EU has set the bar on sustainability – SFDR alters the tone that ESG really is no longer a nice-to-have, but an expectation. The UK and other governments are likely to follow suit with similar regulations. And ESG increasingly matters in domicile choice now, too, as more investors strongly favor committing to funds in jurisdictions with high ESG standards and best practices.
3 Ireland opens its doors
The Emerald Isle has taken a leap forward in its efforts to make itself an attractive domicile for private funds business. The old Ireland Partnership Act effectively acted as blocker to establishing the type of fund structure commonly used by real estate funds. It has now been set aside to make way for the new Irish Limited Partnership law. And the ILP embraces the structures tailor-made for private funds. Further, the Irish central bank has pledged to fast-track approval of products to within 24 hours. This makes Ireland a strong domicile choice post-Brexit for managers that may once have used the UK as an entry point to market products across Europe.
4 Domicile face-off: EU v UK
Could the growing tide of regulation and red tape from Brussels negatively impact the continent’s appeal as a domicile? It is a concern highlighted by one commentator in this report who argues that Europe risks becoming a complex and costly place to raise funds. And, ironically, it could play into the hands of the UK, which with its new-found post-Brexit independence from Europe is in a position to shape its own rules to make it an attractive, cheaper and simpler place for private funds to do business. A review of the UK’s fund structuring regime is already underway and it is clear the government wants to angle the country as a favorable domicile. But it will require a commitment to overhaul the current tax regime, introduce light-touch regulation – not always a popular move – and a departure from overly prescriptive rules.
5 Outsourcing needs grow
The array of global rules, regulations and tax updates that private funds are juggling is dizzying – the list gets longer every year. Managers are scrutinized on everything from performance, to ESG, diversity and inclusion, to data privacy. Operational and compliance teams are worth their weight in gold now. While some managers are staffing up internally to cope, many are opting to outsource middle and back-office functions to third-party administration and advisory firms. Over 70 percent of managers in a recent survey for our affiliate title Private Funds CFO feel this allows them to stay focused on their core functions of courting investors, raising capital, scouting for investment opportunities and delivering returns.