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23 November 2011

ALFI report on Alternative Investment Funds Domicile

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According to a report released by Oliver Wyman, the AIFMD will lead to some re-domiciliation of alternative investment funds to onshore locations in Europe, mainly from European-based managers. However, the offshore centres – Caymans and Delaware - will continue to be major domiciles for these funds.

This study examines where alternative investment funds are domiciled, the reasons behind the choice of domicile and expected future trends. The study shows that the Cayman Islands are the most important jurisdiction for alternative funds overall, driven by their popularity among hedge funds. Delaware by contrast is the most popular jurisdiction for private equity and real estate funds. These preferences have stayed fairly constant over the last two years.

Until recently the choice of domicile was significantly influenced by tax and regulatory considerations. However, there has been, and continues to be, pressure from home market regulators on offshore funds. Over time this pressure will induce some alternative funds to domicile onshore. However, contrary to what is frequently claimed, the authors believe offshore centres will continue to attract a large share of alternative funds for the foreseeable future due to good infrastructure and familiarity, with only a gradual shift onshore.

In this study major fund centres which are currently used by AIFs as domiciles are identified, looking separately at hedge funds (HFs), private equity (PE) funds and real estate (RE) funds. In addition, it looks at the key drivers behind the choice of domicile and at potential futures trends. However, only limited public data exits on where AIFs are domiciled, which makes these tasks quite challenging.

Certain locations can be clearly considered offshore (e.g. Cayman Islands or Jersey), while others are clearly onshore (e.g. Germany, France). However, certain locations have elements of both (e.g. Ireland, Luxembourg, Delaware). What characterises these jurisdictions is that funds do not chose to be domiciled there because there is a large domestic market, but because of other reasons, such as the regulatory framework, infrastructure or distribution channels.

Full study

© ALFI - Association of the Luxembourg Fund Industry

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