Comparing Private Equity Fund Domiciles 26 April 2012 Slide 2
Slide 3 Introduction AIFMD, more politics and jurisdictional
competition Private equity focus Parallels are not easy: o
different laws and different needs o different industries o beware
simple comparisons: o a fund is not a fund o when is regulation
regulation? Slide 4 Introduction (cont.) Subjective criteria can be
decisive: o location o investor sentiment o market trends o the
preference of particular advisers Fiduciary responsibility o
multi-jurisdiction businesses o product improvement Focussing on
facts o understanding context o making a direct comparison Slide 5
Understanding Context Slide 6 Understanding Context (cont.) No
offering or capital raising Risk transparency Transparent costs and
proper pricing Operational analysis: Promoter model Slide 7
Understanding Context (cont.) Operational analysis: Banking model
Problems: 1.Competition 2.Conflicts 3.Secret profits 4.Skewed
pricing Systemic risks: 1.Shadow directorship 2.Cells 3.Pooled
management 4.Custody and illiquid assets (Beware too much control!)
Slide 8 Understanding Context (cont.) Promoter Model UK Traditional
UK Industry (Tax neutral) Traditional Continental Industry (Tax
negative) Banking Model CI AIF UCITS Derivatives Risk free /
transparentSystemic risks / opaque The PE funds spectrum Slide 9 UK
*2 GuernseyJerseyLuxembourg MarketEstablished New Entrant
Reputation of Domicile Onshore Offshore (IMF / FATF / OECD Top
Ratings) Onshore-EU Existing PopularityHigh Low (a market for
structured products) Admin Efficiency and Transparency MediumHigh
Medium / Low Political / Economic Environment Mixed / EUSupportive
/ Good Mixed / EU Applicable LawCommon Law / EU Law Common Law
Influence / Freedom of Contract Civil Law / EU Law
LegislationGeneral Laws Specific Laws AIFMD ImpactProbably
ApplicableN/A / Equivalence Potentially Applicable Typical
Product(s) Limited Partnership (with or without personality)
Limited Partnership (full spectrum) SCA-SICARs, SCS- SICARs,
SICAV-SIFs and FCP-SIFs (no Limited Partnership yet) Characters GP,
LPs, Operator and Auditor GP, LPs, Administrator and Auditor
Management Company, Custodian, Investors, Central Administrator,
Transfer Agent, Domiciliation Agent and Auditor Product
CertaintyMediumHigh Low FlexibilityHighMedium Low This comparison
describes complex issues in very brief terms and should not be
considered a comprehensive analysis. Making a comparison *1 *1
Before implementation & AIFMD. AIFMD will have a massive
impact. *2 The UK represents a union of England, Wales and
Scotland! Slide 10 UKGuernseyJerseyLuxembourg Establishment
CostsMedium / HighMedium Medium / Low Establishment EaseMedium /
High High (from 72 hours if self- assess) Low (up to 6-9 months,
worst case) Operational ModelPromoter Model Hybrid Model or Banking
Model Promoter Model, Hybrid Model or Banking Model Banking Model
Operational ComplexityMediumLow / MediumLowMedium / High
Operational CostsLowMedium High Typical Operational Model In-house
In-house/Substance Office/Outsource Substance Office/Outsource Ease
of Liquidation (if no architecture) High Regulatory Status
Regulated Manager / Unregulated Fund with Operator Regulated GP /
Regulated Fund Regulated or Unregulated GP / Regulated or
Unregulated Fund Unregulated or Regulated Manager / Regulated
Holding Company or Fund Level of Fund RegulationNoneMedium-Flexible
None/Light or Medium-Flexible Medium Promoter Test (for regulated
products) N/AYes/RestrictiveYesVetting Tax Status of FundTax
TransparentTax Neutral Efficient Tax Status of GPTaxable /
GroupingN/A Taxable / Efficient Withholding Taxes on Income
Receipts Low Efficiency Variable Efficiency VATMedium
EfficiencyHigh Efficiency Low Efficiency (plus risk) Tax Risk CFC /
Carried Interest / EU Risk Mind and Management Substance / CFC / EU
Risk / Duchy Risk Carry VehiclesComplex Environment Freedom and
Ease of Structuring, Tax Neutrality Reasonable (SPF or Sarl) Orphan
Vehicles[Trust or 25% cross ownership] Trust or Foundation Dutch
Foundation This comparison describes complex issues in very brief
terms and should not be considered a comprehensive analysis. Making
a comparison (cont.) Slide 11 UKGuernseyJerseyLuxembourg
Co-Investment Vehicles Unproblematic Unproblematic / wide choice
Tax Efficient SPVs Dutch or Lux-cos or Quoted Eurobonds Dutch or
Lux-cos or Quoted Eurobonds / Branches? Same Jurisdiction
Flexibility and Efficiency Natural Market (1)UK Promoters (in
particular sub 200m funds); (2) UK Investing Funds and (3) Offshore
Restricted Investors Strong since 1987, but declining for some
time. (1) Independent Promoters (2) Institutional and Multinational
Investors, (3) Capital Returns, and (4) Funds with High Operational
Costs and Asymmetric Processes. Arguably, the most established
domicile. (1)Independent Promoters (2) Institutional and
Multinational Investors, (3) Capital Returns, and (4) Funds with
High Operational Costs and Asymmetric Processes. Arguably, it has a
slight real estate bias versus Guernsey. (1) Institutional
Promoters, (2) HNWs, (3) Income Generating Funds (Requiring SPVs)
and (4) Special Purposes (Re-packaging). Best understood as a
market for structured products. Weaknesses(1) FSA Authorisation,
(2) No Governance, (3) Declining VAT Efficiency, (4) Product Risk
(AIFMD) and (5) Increasing Disclosure (1) No Passport (AIFMD), (2)
Increasing Scrutiny, (3) Tight Regulation and (4) Non Common Law
(1) No Passport (AIFMD), (2) Increasing Scrutiny and (3) Non Common
Law (1) Operational Inefficiency, (2) High Costs, (3) Product Risk
(Civil and Specific Laws / AIFMD), (4) Fiscal Risks and (5)
Systemic Risks (Custody and Platform) This comparison describes
complex issues in very brief terms and should not be considered a
comprehensive analysis. Making a comparison (cont.) Conclusion
Subject to AIFMD, better profile and interesting features if
managed outside the EU. The Scottish LP providing the perfect
onshore/offshore hybrid. The traditional third country product
favoured by the industry. There is very little real difference
between the jurisdictions. The SCS-SICAR best replicates the PE
model. An SCS-SIF however seems quicker in practice to establish.
Thought needs to be given to custody and VAT issues in particular.
Arguably the best at present - (1) Jersey is more flexible than
Guernsey; and (2) possibly slightly cheaper. Slide 12 Real Estate
(More diverse investors) (Less risk) Slide 13 Conclusion
Comparisons are not easy No clear answers, no winners Established
patterns exist o asset classes o products Nothing happens by chance
The equation is always changing No room for jurisdictional hubris,
focus on: o efficiency and established benefits o service standards
and integrity o a proportionate, internationally acceptable
framework Slide 14 Contact details James Bermingham Tel: +352 24
616 000 Email: [email protected] Aztec Financial
Services (Luxembourg) S.A. 9A, Rue Gabriel Lippmann L-5365,
Munsbach Grand-Duch de Luxembourg Visit our website for more
information: www.aztecgroup.co.uk Slide 15 www.aztecgroup.co.uk
