Regulation and Domiciliation:

Transcription

1 Reguation and Domiciiation: The views of the aternative fund industry Research survey 2012

2 Foreword Over the months of June and Juy 2012 IFI Goba s research department contacted a substantia number of the organisations around the word in the aternative investing industry to conduct this survey. The vast majority of these were investors and managers (both private equity and hedge fund) with a number of aw firms and consutants based in London or New York incuded too. Most of those that participated did do so by phone interview. IFI Goba spoke to 96. The remaining 39 repied by e-mai. Overa, 135 responses were received. The overa breakdown of categories was: investors 32%, managers (incuding fund of funds) 52%, awyers 11% & consutants 5%. We woud ike to thank a those that gave up their time to respond to this research study. In particuar, we woud ike to give specia thanks to the investors that participated in this survey. A significant number of them said that this was the first time that they had been asked questions on domiciiation and the reated subjects incuded in this study. It is hoped that these research resuts wi provide the aternative fund industry, both the hedge fund and private equity sides of it, with a detaied assessment of how reguation is affecting domicie and service provider seection decisions. We beieve that this study breaks new ground. As mentioned, many of those that we spoke to, not just investors, said that it was the first time that they had participated in research on these subjects. Catagory breakdown 11% 5% 52% Investors Managers inc. Fund of Funds Lawyers 32% Consutants The investors that agreed to be interviewed are amongst the word s argest institutiona aternative fund aocators. Others were private banks, weath managers and famiy offices. The overwheming majority of them are we practiced at aocating to funds that are domicied offshore as we as in the EU. Attempts were made to reach investors that are ess we practiced in this area, for exampe institutions that might be prohibited from aocating to offshore funds. However these interview requests were generay decined. Therefore the views provided by investors for this survey are argey those of the argest and most sophisticated aocators in the industry. Recognition shoud go to Koma Shakee and Matthew Robson from IFI Goba s research department who did most of the fiedwork for this survey. 2 Reguation and Domiciiation Research Survey 2012

3 Contents Foreword 2 Introduction 4 The main concusions 5 Questions for Investors 7 a) Reguation 7 b) Genera 9 Questions for Fund Managers and their Advisors 11 a) Reguation 11 b) Genera 15 Reguation and Domiciiation Research Survey

4 Introduction As is widey known, there has been a sizeabe increase in the reguation of investment services since the arriva of the market crash and credit crunch. According to Thompson Reuters the number of reguatory changes has gone up steepy over the ast few years. In 2008 it was 8,704 rising to 14,215 in The aternative investment industry has been very much front and centre of a of this. Equay the jurisdictions where most private equity and hedge funds are domicied have come under renewed scrutiny over this same four year period. The broad scope, as we as the sheer quantity of reguation, is changing the private equity and hedge fund businesses, as many studies that have pubished since 2008 have pointed out. But what has been researched far ess, if at a, is how a this might infuence domicie and reated service provider seection decisions. If this survey had been conducted in 2009, for exampe, in the initia aftermath of the unearthing of the Madoff fraud and when the first draft of the EU s AIFM Directive came to ight, many respondents woud have ikey said that the era of offshore domiciiation was on the wane woud have been thought of as the high-water mark for hedge fund domiciiation in Cayman or private equity domiciiation in the Channe Isands, for exampe, by a arge number of ikey survey respondents. Redomiciiation, at east as a trend rather than as just the odd one off, was being spoken of for the first time. Some EU jurisdictions enacted fast track procedures to wecome in the expected arge number of refugee funds feeing the offshore centres. Back then some even thought that aternative UCITS woud come to dominate the European hedge fund market, in pace of offshore funds. However the resuts of this survey, conducted as it was in 2012, indicate a much more compicated picture than most woud have supposed back then. There is something in the resuts for amost everyone both offshore and onshore jurisdictions. The one possibe exception is niche service providers. The resuts do indicate a strong preference by investors and managers for we known names, particuary in accounting and fund administration. 4 Reguation and Domiciiation Research Survey 2012

5 The main concusions Investors surveyed want to aocate to funds that are domicied in tried and trusted jurisdictions. This is more important than whether the ocation is onshore or offshore. Equay investors want to see the names of we known service providers on a fund s prospectus. Famiiarity is a. Investors preference for we known named service providers and jurisdictions feeds through to managers. Many managers interviewed then take the path of east resistance, as one put it, when deciding on where to go and with whom. The majority of managers surveyed wi pay more for service providers if it provides reassurance for their prospective cients. Equay, they wi pick jurisdictions that might be frustratingy sow and bureaucratic rather than those that are quicker at setting up funds, or generay more fexibe, if this wi hep them win aocations. Investor reassurance trumps other considerations. However, if everything ese was equa, managers woud of course prefer fexibe and inexpensive service providers and domicies. This survey found no genera trend to redomiciiation. A number of the managers interviewed have aunched additiona funds in the EU for certain casses of investors but few have done this in repacement of their offshore funds. Launching parae ( mirror ) funds in the EU is a generay a tactica decision. In other words, it is done to reach certain investors for a specific purpose. It is not done as part of some wider strategy to reconfigure the manager s overa business. In future managers are ikey to use a variety of different domicies for different purposes. Larger managers are deveoping different fund ranges for different casses of investors. They wi seek to pick the most appropriate jurisdiction for each cass of investors that these funds are designed for. Just as it is now standard practice for hedge fund managers to use mutipe prime brokers so it wi become standard practice to use mutipe domicies. The resuts of this survey suggest that the offshore jurisdictions that are ikeiest to be successfu are those that deveop their own areas of expertise and are recognized as such by investors and managers. For exampe, Guernsey is we known in the private equity word and has we respected service providers with many years experience in this business. Cayman has achieved dominance in the offshore hedge fund industry and aso has we known and experienced service providers. In contrast to growing offshore speciaization, Ireand and Luxembourg are ikey to deveop yet more of a generaist roe in this business. They have become the asset management industry s warehouses covering a wide variety of fund categories such as ong ony mutua funds, money market funds, ETFs etc whist at the same time catering for private equity and hedge funds. Over the ast 20 years one of these jurisdictions has often taken the ead over the other in Reguation and Domiciiation Research Survey

6 different areas of the asset management business, particuary on the aternative side of it. For exampe, Ireand became the dominant payer in hedge fund administration whist Luxembourg took a ead in private equity service provision in the EU. In future that kind of distinction in their roes is ess ikey to occur. Whist ony a few of the respondents to this survey were based in Asia their repies were amongst those of the most vaue to the overa resuts. They suggest that we may be at the beginning of a fundamenta shift in attitudes to domiciiation and service provision from this part of the word. To date, the Asian aternative market has been dominated by funds whose ega base is either in the Caribbean or the Channe Isands. (Additionay, on the ong ony side of the business, UCITS funds are popuar in the region.) A sma number of those interviewed said that might change as Asians seek to take more contro over their investment activities. One respondent suggested that Hong Kong, with a its infrastructure and expertise, coud become Asia s own (aternative) fund domicie amost overnight. There was a considerabe degree of annoyance about the growth in reguation from most managers interviewed. (The immediate reason for conducting this research was to gauge the industry s reaction to the growth in reguation and to assess whether it woud impact domiciiation and service provision seection decisions.) Unfortunatey the fiedwork was conducted prior to the Leve II AIFM Directive announcement, which was due out in June but has been postponed. Many interviewees said that they woud wait to see what was in this measure before making any strategic business decisions. Interviewees from the hedge fund side of the business are much better informed on the issues in the AIFM Directive than those on the private equity side. There is a degree of anxiety amongst a few interviewees that AIFMD wi have a negative impact upon efforts to improve aternative fund governance. The Directive focuses upon the manager, rather than on the fund (which is often offshore whist the manager is more easiy reguated as he is based in London or esewhere in the EU). This means that the manager, not the fund s board, is hed responsibe for the protection of investors. The concern is that European managers compying with AIFMD wi not want to spend more time or money on board issues than necessary. Concern that the growth in reguation wi ead to overap in requirements paced on the manager and the fund, in other words between the jurisdiction where the fund is domicied and where the manager is ocated was expressed by a number of respondents. Some aso beieve that investors may be ued into a fase sense of security by the extra reguation and consequenty not do the requisite eve of due diigence. Aso, FATCA is a grave concern for the few that interviewed that knew anything about it. As the impications of FATCA sink in there are ikey to be substantia costs for the aternative fund industry. As one interviewee put it, the consequences coud be worse for certain payers than a the other reguatory measures combined. Back office outsourcing is universa in the European hedge fund industry and common in the US one. But it is ess common in the private equity industry incuding in Europe. This has been predicted to change but based upon the responses from at east some interviewed for this study from the private equity industry this is not going to happen very quicky, if at a. 6 Reguation and Domiciiation Research Survey 2012

7 Questions for Investors a) Reguation 1) Has the introduction of new reguations and directives (such as the Aternative Investment Fund Managers Directive in Europe, the Dodd Frank Act in the US, FATCA etc) caused your organisation to reassess its wiingness invest in funds with managers and/or investment vehices that are domicied in any particuar jurisdiction? Whist many of the investors surveyed have views of the reguatory measures being introduced none have said that it has caused their organisation to reassess their wiingness to invest in certain categories of funds - for exampe, offshore funds. (But pease note that the fiedwork for this survey was done before what is in Leve II of AIFMD is known.) As one interviewee put it, We wi carry on doing what we are doing unti someone tes us we can t. (Advisor to Nordic pension funds.) Larger US pension funds were consuted on Dodd-Frank. But no European investors were consuted by the EU prior the pubication of the first draft of the AIFM Directive The overwheming majority of European investors interviewed are aware of the AIFM Directive and some have a significant degree of knowedge on the subject. Dutch pension funds contacted were particuary knowedgeabe. UK institutiona investors on average had ess knowedge of the Directive than their counter-parts in continenta Europe. But none said that it is ikey to have an effect upon their aocation decisions uness funds they are interested in do not compy with the Directive (for exampe, on its discosure rues). North American investor interviewees (15% of the overa investor sub set and 7% of a respondents) are a we aware of Dodd-Frank but none said that it has had any effect on their investment decisions. Some of the arger US pension funds interviewed said that they were consuted on the measure before the egisation was drafted. (This contrasts markedy with Europe where no investors were consuted by the EU Commission prior the pubication of the first draft of the AIFM Directive.) Knowedge of FATCA was extremey ow amongst a investors interviewed. Reguation and Domiciiation Research Survey

8 2) What do you think of the increase in reguation of aternative investments that is being impemented by authorities foowing on from the market crisis? Wi it encourage you to invest more (or ess) in aternatives? Pease state what you ike and disike about the increase in reguation. No one has said that the increase in reguation wi encourage them to aocate more to aternatives. The overwheming view is that AIFMD is intended to protect retai or novice aternative investors not those that have experience here. There does not appear to be any correation between reguation and aocations to aternatives. (Pease note that investors interviewed were very argey amongst the most experienced and argest aocators to aternatives.) I hope they haven t done this for us. it is not going to hep. - UK Pension fund No one has said that the increase in reguation wi encourage them to aocate more to aternatives 3) There has been some concern that the AIFM Directive focuses too much on the responsibiities of the manager of the fund, rather than on its directors. The fear is that this wi undermine the corporate governance practices of the directors. Do you have any views of this? One pension fund manager from Sweden said that the growth in reguation in genera, and the AIFM Directive in particuar, woud mean that that governance of aternative funds woud become ess important in the future. He thought that it is good that the Directive focuses on the manager and beieves that it wi be beneficia for institutiona investors. A sma number of interviewees made the point that the AIFMD focuses upon the manager because that entity is based in the EU (whereas the fund and its directors are mosty offshore). But no one sees why this shoud cause a probem for the governance of the fund. 4) In terms of reguatory reform, what woud be the most, and east, hepfu, changes to the current reguatory environment from your organisation s point of view? Reguation that improves transparency is wecomed (both portfoio and operationa transparency). There appears to be frustration from investors in not getting a the information that they want, when they want it. If reguation can hep them here it woud be serving a usefu purpose. Fund of fund interviewees, in particuar, and some others mentioned that they were dissatisfied with the way that some hedge fund managers had deat with market crisis by imposing restrictions on redemptions. A Swiss private bank said that it was attracted to aternative UCITS because of its iquidity guarantees. 8 Reguation and Domiciiation Research Survey 2012

9 5) Do you think that there is a cear demarcation of reguatory responsibiities between where the portfoio manager is based (ie the FSA and SEC in the UK or US) and where the fund is domicied? Are you cear about which responsibiities rest with which reguator? Few said that there is a cear demarcation. If it was cearer this coud reduce some of the reguatory burden. b) Genera 1) Woud you prefer to aocate to funds that are domicied in offshore or onshore ocations (assuming simiar performance for a simiar strategy) or does this make itte difference to you? Overwhemingy, what is important to investors are the fund s performance, genera accountabiity and its service providers. The fund s ega jurisdiction generay ranks beow these other criteria. When investor survey respondents consider domiciiation issues they want to see that the fund that are might aocate to is based in a we known ocation that is famiiar to them. As one famiy office put it, we don t ike surprises. However approximatey a third of investor respondents did say that the domicie of a fund was becoming more important to them. But this did not mean that they woud not be aocating to offshore funds. Rather it impies that they woud in future be expressing a preference for we run and famiiar jurisdictions offshore or onshore. Set against this were a sma minority who said that domiciation was no concern of theirs. One pension manager said that the domicie is the choice of the manager not us. The domicie is the choice of the manager not us - Swedish Pension fund A third of investors said that the domicie of a fund was becoming more important. But this did not mean that they woud not be aocating to offshore funds 2) Have your views on fund domiciiation changed at a over the ast three years (particuary since the market crisis)? A sma number of interviewees said that initiay, in the wake of the crisis, it ooked as if there woud be a switch from offshore to onshore ocations but that this seems not to have materiaized. They say that they are being offered as many offshore funds as before. The vast majority of respondents say that their views have not changed (ie those aocating offshore are sti happy to continue to do so). However aternative fund governance issues have grown immeasuraby since the market crisis and some of the fund of funds interviewed have Reguation and Domiciiation Research Survey

10 been pressing for reforms on this matter in Cayman. One of those surveyed has said it wi not aocate to Cayman based funds if reforms are not introduced there. 3) Do you do more due diigence on your funds service providers since the market crisis? 70% have said yes. The remaining 30% said that they were aready doing significant due diigence on their funds service providers before the crisis. 4) Pease coud you state what it is that you are ooking for when you do due diigence on service providers? (Is it, for exampe, size of firm, we known name etc?) Overwhemingy investors ike to see names on a fund s prospectus that they know. Famiiarity with service providers is becoming more important for investors. Having a recognised name is becoming ever more critica. A weath manager said the foowing, Obviousy seeing names of service providers that are known to us makes our ives easier. 5) Have fund governance issues grown in importance since the market crisis? Do you do due diigence on the directors of the funds that you invest with? There was some division in responses to this question. The weath managers and fund of funds that have been interviewed have a said yes. One famiy office has said the same. But the pension funds and some famiy offices said that it had not grown in importance. 6) Do you have any genera views on future of fund domiciiation? As mentioned, approximatey a third of investor interviewees said that the ega base of funds that they invest in is becoming more important to them. But this has not ed to a shift away from offshore (or onshore) funds. Domiciiation is not as important to investors as a fund s service providers such as its administrator or prime broker. Above a investors want to see are recognised named service providers and domicies that they are famiiar with. Investors want to see recognised named service providers and domicies that they are famiiar with Overwhemingy, what investors want are professiona and responsive fund service providers. Insofar as they have views on individua domicies their preferences are based upon where they peope are. (Conversey they have reativey itte interest, or indeed knowedge, on the specifics of any particuar offshore ocation s reguatory regime.) 10 Reguation and Domiciiation Research Survey 2012

11 Questions for Fund Managers and their Advisors a) Reguation 1) Has the introduction of new reguations and directives (such as the Aternative Investment Fund Managers Directive in Europe, Dodd Frank Act in the US, FATCA etc) caused your organisation to reassess where your funds are domicied? If yes, pease say how. The responses from manager interviewees have been remarkaby consistent: each has said that they are foowing the reguatory initiatives cosey (particuary the AIFM Directive) but no one has stated that it has resuted in a reassessment of where they wi domicie their funds at east yet. The overwheming majority of European based respondents have said that they are waiting for the Leve II AIFMD provisions before making any further assessment of the Directive. Managers interviewed in the US and Asia are broady satisfied with their domiciiation arrangements. But many of those in Europe are in a genera state of reguatory uncertainty because of the never ending AIFMD drama, as one put it. However, whist the Directive is expected to cause disruption and possiby difficuty, it is not necessariy expected to affect domiciiation. European based managers had few comments to make about Dodd- Frank and US ones had itte knowedge of AIFMD. FATCA is however something that many interviewees are becoming much more aware of. Overa, 84% said that they had information of it. However, whist those with knowedge of it, fear that it wi be highy disruptive, nobody said that it wi impact their domiciiation arrangements. But it wi cause them to focus on their reationship with their administrators. (Manager interviewees with knowedge of FATCA generay said that they were reying upon their administrators to meet the requirements in the Act.) 91% of hedge funds (incuding fund of funds) but ony 70% of private equity managers had knowedge of FATCA. FATCA Knowedge Hedge Fund Managers Private Equity Managers 70% 91% Reguation and Domiciiation Research Survey

12 2) What do you think of the increase in reguation of aternative investments that is being impemented since the market crisis? Do you think that benefits wi outweigh the costs or wi it be the other way around? There has been a wide variety of responses to this question. But not one interviewee has said that the benefits outweigh the costs. Some have compained that the increase in reguation adds to costs without achieving any rea benefit to investors. One interviewee said that the number of reguatory changes per year, affecting fund management, had gone up from 8,704 in 2008 to 14,215 in 2011 an increase of 63%. Many hedge fund interviewees compained that the reguatory Tsunami risks kiing boutiques and start-ups. They fear that the industry s creativity wi be ost There were some compaints of reguatory overap between different measures being enacted and between what managers are required to compy with in the ocation where they are based and where their funds are domicied. For exampe. managers mentioned that there is overap between MiFID and the AIFM Directive. Larger managers report that they are increasing headcount to dea with what is now required. Smaer managers are spending more money with third party reguatory compiance firms. (Something that they some say they can i afford at present.) Managers report that they are required to invest in new systems to dea with the growth in reguatory requirements. Many hedge fund interviewees, in particuar, compained that the reguatory Tsunami risks kiing boutiques and start-ups in their sector. They fear that the industry s creativity wi be ost. There is aso concern that reguation coud, paradoxicay, be dangerous as it might provide investors (incuding professiona aocators) with a fase sense of security, meaning that they do not do the requisite amount of due diigence that they woud otherwise undertake (in an offshore fund). At the same time it coud aso encourage the retai market to invest in funds that they do not propery understand. (Aternative UCITS was mentioned by a number of respondents in this regard.) Other respondents have said that they are supportive of good reguation that can, if done propery, hep reduce risk and increase transparency. As one interviewee put it, reguation ays out objectives and expectations so it can infuence behaviour in a positive way and reduce risk. Some arger managers see reguated schemes, such as aternative UCITS funds, as a means of increasing the market for their products. 12 Reguation and Domiciiation Research Survey 2012

13 3) There has been some concern that the AIFM Directive focuses too much on the responsibiities of the manager of the fund, rather than on its directors. The fear is that this wi undermine the corporate governance practices of the directors. Do you have any views on this? The impications for corporate governance of the AIFM Directive is not something that managers have considered. However some did say, when asked this question, that there coud be some ong term impications but that it is far too eary to say that, at present. The Directive makes the fund manager, not its board, responsibe for the protection of investors. The concern is this wi not hep improve standards of corporate governance oversight. Whist the Directive does nothing to stop this occurring the view is that European managers compying with AIFMD wi not want to spend more time or money on board issues than they have to. However an interviewee said that governance issues are being addressed by ESMA. It is anticipated that ESMA wi come up with recommendations to ensure that aternative managers make sure that their funds are run for the benefit of its sharehoders. 4) In terms of reguatory reform, what woud be the most, and east, hepfu, changes to the current reguatory environment - both to you and to your investors? Overwhemingy, what respondents want is a substantia sow down in the quantity of reguatory change being imposed upon them. (As mentioned, it has gone up by 63% in the ast 3 years.) Respondents have made the point that what matters to investors is having confidence in the supervisory regime rather than the measures themseves. A number of managers have mentioned that Madoff was supervised by the SEC. Ineffective supervision aied to ever increasing reguation does not hep investors. 5) Do you think that there is a cear demarcation of reguatory responsibiities between where you, as the portfoio manager, are based (ie the FSA and SEC in the UK or US) and where your fund is domicied? Are you cear about which responsibiities rest which reguator? There are not enough quaified peope in the word to supervise a these measures effectivey. - Hedge fund manager Reguation can have unintended consequences. It can have the opposite outcome from what is intended. - Fund of fund manager Most respondents say that it is reasonaby cear where the division ies as there is a demarcation between the manager and the fund. Nonetheess a number of respondents have compained of reguatory overap. Reguation and Domiciiation Research Survey

14 Others have pointed out that it is inevitabe that reguators in different jurisdictions wi require some of the same information. This is an inevitabe consequence having a fund in another territory from where the manager is based. As mentioned in response to question 2 managers are focused on the overap between different measures that are being enacted (such AIFMD and MiFID) as we as between reguations in the domicies and with the FSA or SEC. We spend too much time on reguation as it is. - Private equity manager 6) Do you have any comments on the reguatory regime in: Bermuda BVI Cayman Gibratar Guernsey Ireand Ise of Man Jersey Luxembourg Mata EU jurisdictions Respondents have said that Luxembourg, in the face of some criticism, has made an effort to become more responsive than it used to be. However managers say that it is sti necessary to go through awyers in Luxembourg when wishing to address issues with reguators. This is not the case in either Ireand or Mata. The reguator in Mata has reputation of being fexibe and is said to be happy to meet with managers at reativey short notice. One interviewee said that Mata is tightening up on its reguations on corporate governance in order to contrast its practices here with those in Cayman, in particuar. Despite the fact that many managers interviewed use Ireand (either as an administration base and/or as a ega domicie) there were reativey few comments have been made on the regime in Dubin. One interviewee, however, said that its decision to aow a fast track procedure for offshore funds to redomicie to Ireand woud prove to be a mistake. Others made positive references to Ireand s new Fitness and Probity regime and directors code. Offshore A number of managers said that they expect there wi be changes to the reguatory regime in Cayman occurring this year. As resut some thought it woud unwise to comment at present. However there has aso been criticism from a number of respondents of the time that it has taken CIMA to address concerns raised by various outside interested parties 14 Reguation and Domiciiation Research Survey 2012

15 (particuary by some arge fund of hedge funds) into governance issues on the isand. Guernsey s reguatory regime was praised. Jersey s was aso commented on favouraby but respondent suggested that Jersey s reguatory regime is in danger of being seen as a things to a men. The other interviewee said it had got the baance about right. No one wished to comment on the BVI, Bermuda or Gibratar. b) Genera 1) Do you anticipate redomiciing any of your funds over the next two years? Or have you done so recenty? Ony two respondents have said that this is in their pans at present. However a significant number of interviewees eft the door open if reguations or investors require it in future. Redomiciation seems to be more of a tactica, rather than a strategic, decision. Redomiciation is a tactica, not a strategic, decision 2) Do you anticipate aunching mirror funds (ie onshore or offshore equivaents of funds based in other ocations) over the next two years? Or have you done so recenty? 37% of respondents have aunched mirror funds since the market crisis. These range from QIFs to SIFs and aternative UCITS funds. QIFs and SIFs are popuar with some managers for the more fexibe iquidity arrangements that they offer fund managers. Aternative UCITS have not made much of a contribution to the overa growth of hedge fund assets Those managers that were interviewed that have aunched aternative UCITS funds have mixed feeings. There was genera recognition that this fund category is growing. One manager mentioned that aternative UCITS assets are now in excess of $150 biion. But no one fet that these funds are, to date, succeeding in attracting the numbers of new investors into aternatives that was anticipated. (One manager said that much of the infows that his aternative UCITS fund had attracted were from investors that had switched from his offshore funds. The switch is being done for the iquidity and transparency that these vehices offer.) In other words much of the $150 biion is from existing hedge fund investors. Aternative UCITS have not made much of a contribution to the overa growth of hedge fund assets. Reguation and Domiciiation Research Survey

16 3) In which jurisdictions have you aunched funds in addition to your origina domicie? (37% of managers) Ireand Hedge Fund Managers Luxembourg Mata Private Equity Managers Luxembourg ) Where are your origina funds ocated? BVI Bermuda Cayman Guernsey Luxembourg ) What were the main reasons that you decided to aunch additiona funds in new jurisdictions? Overwhemingy the reason given is to gain access to the reguated market in Europe. However one manager, that has done this, said that this was done primariy for the Swiss market (which is outside the EU). The decision was made in the wake of the Madoff scanda, aied to credit crunch. This manager discovered that the cients of Swiss private banks were turning against iiquid offshore hedge funds. They woud ony invest in hedge funds if they offered guaranteed iquidity. They have therefore been using their aternative UCITS fund for this market with its iquidity guarantee. Re setting up EU hedge fund patforms, there has been a ot of tak but itte action. Managers that have aunched additiona funds in EU markets are speaking to investors that that tod them that they woud ony aocate to reguated funds. In particuar, the insurance sector is said to be in this category. 16 Reguation and Domiciiation Research Survey 2012

17 German institutiona investors were aso quoted by managers interviewed as being in this camp. One manager is setting up a patform in Ireand to cater for these investors and said that the eve of interest has been very encouraging. But, as another interviewee put it, there has been a ot of tak but itte action. He added that this is doubtess due to the precarious state of markets rather than because of the vaidity of the structures of the reguated funds being offered to these investors. 6) How satisfied are you with the overa standard of service provision in the domicies where your funds are ocated? (Out of 5, with 5 being fuy satisfied.) Bermuda 2.3 BVI Cayman Guernsey Ireand Jersey Luxembourg Mata ) Have you ever changed any of your service providers since you aunched your fund(s)? If so, why? Just four managers have changed administrators. In two cases this was due to consoidation rather than criticism of the service provider. The other two were due to dissatisfaction and/or staffing issues. 8) Do you anticipate changing your fund administrator, auditor or awyer in the foreseeabe future? If so, why? No one said yes. Reguation and Domiciiation Research Survey

18 9) How satisfied are you with the service that you receive from the foowing: Administrator, Auditor, Lawyer (in fund domicie) Administrator Auditor Lawyer 5% 7% 8% 2% 10% 88% 92% 88% Very Reasonaby Not Satisfied Very Reasonaby Not Satisfied Very Reasonaby Not Satisfied (There was some criticism of auditors fees in Cayman which is not refected above.) 10) Do you have any genera views on the future of aternative fund domiciiation? Respondents say that their domicie seection is primariy governed by investor acceptance. Managers that answered this question make the point that they want to be in a jurisdiction that is we known to their prospective investors. Other factors that are important are the overa reputation of the jurisdiction and famiiarity of use. If managers have had positive experiences in a ocation they are generay reuctant to change (and woud ony do so to compy with investor or reguatory demands). There was itte comment made on the reguatory regimes in each of the domicies. Interviewees eave this for their awyers whist assuming that each ocation they might ook at is generay we run. Overwhemingy, what managers want is a jurisdiction that is we known to their prospective cient base, has arge numbers of service providers to choose from, is fexibe and not expensive. Cient acceptance is top of the ist for amost everyone. 18 Reguation and Domiciiation Research Survey 2012

19 IFI Goba Reguation and Domiciiation Research Survey 2012 IFI Goba 10 Arthur Street London EC4R 9AY T: +44 (0) E: