Growth Trends in AIFs | Dominant Domiciles

Map of the worldAs demand for regulated Alternative Investment Funds (AIFs) continues and the boundary between traditional AIFs and mutual funds further erodes, investor appetite for AIFs is expected to remain strong. What’s driving this growth? Which domiciles are benefiting most?

A recent NICSA webinar Current Trends: Domiciles of Alternative Investment Funds featuring Kamil Kaczmarski, Engagement Manager, Wealth and Asset Management Domain with Oliver Wyman in Frankfurt, focused on trends driving growth among the most successful domiciles for AIFs. He reviewed the results of a study commissioned by ALFI, the Luxembourg fund industry association.

Structures that meet the growing demand for AIFs:

  1. Co-domiciliation – This effective and efficient way to obtain a European passport to sell funds is increasingly favored. Bonus: Ensures AIFMD compliance.
  2. UCITS-compliant replication of alts strategies – Available replicated strategies have doubled since UCITS IV arrived in 2009. Drawback: UCITS investment constraints.
  3. Regulated mutual fund structures – United States takes the lead with 40 Act alternatives funds growing by 107% during 2010-2013. For the same period, UCITS-compliant AIFs in Europe grew 63%, whereas traditional AIFs grew by 13%.

Key success factors for top domiciles:

  1. Attractive tax system – low taxes, double taxation treaties
  2. Suitable legal environment – flexible LP regimes, fund structures; cooperation with international supervisory authorities; adherence and alignment with international standards, particularly investor protections
  3. Quality – locally present custodians with global footprints, available skilled labor, one-stop-shopping platform
  4. Investor requirements – easy re-domiciliation process, short registration period, low fees
  5. Responsive authorities – flexible and open, no-nonsense approach

Current trends:

  • Cayman Islands and Delaware remain the traditional leaders
  • European domiciles are experiencing strong growth as a result of the AIFMD

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