Choosing the right jurisdiction for your fund: five top tips

As fund management becomes more complex, it’s important to make the right strategic decisions from the start

Fund management is increasing in complexity as firms manage larger portfolios and pursue different strategies across multiple jurisdictions. Private equity firms are becoming more diverse as financial organisations – and have many strategic decisions to make.

One key choice is where to base your new fund. This was discussed by the Operational Issues panel at the Hong Kong Venture Capital and Private Equity Association (HKVCA) Asia Private Equity Forum 2022, in which I took part. Here are five issues to consider.

1. Onshoring is trending upwards

Onshoring – a move away from basing funds and fund management companies in traditional offshore jurisdictions – is increasingly popular. Managers are seeking a base in a jurisdiction where the fund or fund manager has actual economic substance.

Twenty years ago, the Cayman Islands was popular because of its tax neutrality. It also offered data confidentiality given there was no requirement to disclose investor identities to third parties.

However, both these factors are changing: investors are looking for new jurisdictions and new fund structure products have been launched to attract this money.

2. Explore the range of fund structures available in different jurisdictions

In the Asia-Pacific (APAC) region each jurisdiction has its own unique fund structure. Options include Australia’s Managed Investment Trust (MIT), China’s Qualified Foreign Limited Partnership (QFLP), Hong Kong’s Limited Partnership Fund (HKLPF) and Singapore’s new Variable Capital Company (VCC).

Each promotes its own opportunities. While Cayman Island funds remain popular, demand for other jurisdictions is growing. There are now more than 400 LPFs in Hong Kong and many multinational managers are considering the APAC region to establish new funds or test new markets.

Think too about the substance of your new operations. Where will you begin team-building? Where will the investment manager be located? Where will investment management decisions be made? The answers will help you decide which jurisdiction will best suit your fund.

3. Research your chosen jurisdiction’s infrastructure

Settling on a jurisdiction and whether to pursue an onshore or an offshore route involves key strategic and operational decisions.

Infrastructure is important. You will need to access legal services, tax advice, compliance and company secretary services, and fund administration services. In addition, jurisdictions such as Singapore actively support the fund management industry and have new vehicles such as the VCC to support this. The same applies toHong Kong which has its own vehicles like HKLPF and Open-ended Fund Companies (OFC).

We notice in Hong Kong managers are setting up HKLPFs as a project fund to enable downstream investment into other Asian countries. They can also be test-beds. A fund’s entire lifecycle can be tested within a short time from incorporation, daily operation and administration and all the way through to exit with this type of fund.

4. There are no easy jurisdictions for fund management

The requirements when setting up funds differ wherever you launch. Jurisdictions will require managers to comply with anti-money-laundering (AML) rules and know-your-customer (KYC) guidelines.

From a fund administrator’s perspective, regulatory and compliance requirements are similar – there are no easy jurisdictions. And the landscape can change, with new Organisation for Economic Co-operation and Development (OECD) or EU regulations and new countries added to grey or black lists.

We have seen a trend for fund managers to test different jurisdictions with small launches. Then, if they need to move quickly, to set up a new fund where they have already tested the opportunities.

For example, in Hong Kong originally only Chinese sovereigns, some local managers or those with Chinese backgrounds were looking to set up HKLPF. Now we see multinational managers joining this market to test the opportunities.

5. Identify what your investors are looking for when you plan a new fund

You need to consider the underlying investment community you will target. For example, if you want to be close to China, then Hong Kong or China are the jurisdictions you should consider.

European investors prefer to invest in European vehicles, established in Ireland or maybe Luxembourg but the cost for EU funds can be an important consideration. That’s why my initial conversation with clients is about fund size and whether they are going to reach a USD100m threshold for EU funds set up.

It’s not cost-effective to consider EU funds if you are going to have less than that amount, because with EU funds you will need an AIFMD manager, a depository, a custodian and a fund administrator. You may also need to consider appointing local directors because board meetings may have to be held locally. Tax reporting and investor reporting services can also add extra costs. Intertrust Group’s teams across Europe can provide full services coverage (except custodian) to EU funds.

How Intertrust Group can help

Our APAC teams are located in China and in major operational hubs such as Hong Kong and Singapore. Our APAC reach also extends across Australia, India, Japan and New Zealand. Our teams have the talent and technology to provide onshore and offshore fund services, supported by other lines of business such as corporate secretarial, private wealth and capital markets. We work together with our clients to deliver one-stop solutions.

 Why Intertrust Group?

• Intertrust Group is a publicly listed company with 65 years’ experience in providing world-class trust and corporate services to clients around the world.
• Intertrust Group provides a wide range of financial and administrative services to clients operating and investing in the international business environment. We help companies expand globally, offering support with restructuring, outsourcing and further developments.

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