CHANGING TIMES: The impact of political and regulatory measures26 Apr 2018
Early in 2018, Ocorian conducted an online survey of specialists working within fund advisory and/or management. Respondents were drawn across the Private Equity and Real Estate profession and primarily based within the UK (71%) or central and western Europe.
Over two-thirds (67%) of respondents to our survey agree that political pressure and regulatory changes, like AIFMD and BEPS, have led to an increased consideration of onshore structures. There are other factors impacting this drive for greater transparency, not least the need to reorganise operational procedures and increased compliance and operational costs.
“Undoubtedly, for certain groups, there is a shift to onshoring,” observes Rob Williams, Tax Director – Real Estate and Construction at BDO LLP. “This is partly due to BEPS but also recent tax changes in the UK relating to commercial property, as well as cost."
He goes on: “It’s a combination of factors. If it was one in isolation people would, I think, be happy to keep an offshore presence but the combination has prompted some to review their activities.”
Of course, the biggest and most uncertain factor remains to be that of Brexit which, with a transition plan now in place, is forcing a pragmatic review and reorganisation of operations.
“For some managers, not currently regulated elsewhere in the EU, Brexit is making them think about their options,” explains David Brown, Partner at Deloitte. “Some are choosing to relocate some operations now and set up regulated entities in the EU to have distribution within Europe – and they’re largely looking to Luxembourg and, to a certain extent, Dublin. But many are making contingency plans and waiting.”
Marc Schubert, Associate from Weil Gotshal and Manges (London) LLP agrees: “Certain EU-based investors are increasingly showing a preference for EU-based fund structures and, along with the likely loss of the AIFMD marketing passport for UK funds post-Brexit, Luxembourg is set to benefit from the UK’s departure from the EU.“
He continues: “Brexit is also likely to affect this area in a variety of ways, even in respect of structures which do not involve the UK. For example, ESMA recently issued guidance which raised concerns in respect of delegation arrangements – although set out in the context of Brexit, such moves could have a wider effect on structures which rely on delegation or advisory arrangements.”
However, there is still a very clear role for key jurisdictions like the Channel Islands and London also remains a very important investment destination.
“Offshore structures continue to provide a practical alternative for managers not heavily reliant on capital from EU-based investors – staying outside the full scope of AIFMD continues to be an option for managers who can rely on national private placement regimes to access European investors,” says Schubert.
Ocorian’s Director of Real Estate, Nick Terry agrees: "For UK real estate investment structures, Ocorian's London office has seen a tick up in the use of UK LLPs to hold assets, but with investors holding their position in the LLP via Jersey companies."
It would appear that managers are looking for optionality, sizing up the markets of Luxembourg, Ireland, Jersey, Guernsey and London to prepare for any outcome.
“Private equity and real estate managers are very creative in uncertain times," says Ocorian's Director of Alternative Investments, Richard Hansford. "As it stands, all Brexit has done is cause some managers to review their operating models and investment strategies.”