Fundraising in Europe
Selecting a fund domicile
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Selecting the right fund domicile is a strategic choice that can greatly influence success.
The choice affects regulatory compliance, tax efficiency, investor appeal, and market access. Fortunately, several top-tier jurisdictions – Luxembourg, Ireland, Jersey, and Guernsey – offer unique advantages that make them ideal for U.S. fund managers, with close-ended and open-ended fund structures as well as retail solutions.
Not all U.S. fund managers need a passport to market in the EU. The arbitrage between Luxembourg/Ireland or Jersey/Guernsey is driven primarily by the distribution strategy of U.S. fund managers.
In some cases, U.S. fund managers only undertake marketing in a small number of EU countries where the NPPR registration process is reasonably straightforward, and they do not target European institutional investors with an investment strategy focused on European funds. Here, Jersey/Guernsey may be their best option. In all other cases, Luxembourg and Ireland will be preferred by U.S. fund managers.
Listen to Lauren Falkowitz, Partner at Goodwin Procter, talk about the strategic choices to consider when selecting a fund domicile.
Deciding where to domicile your fund will be influenced by these key factors:
Regulatory environment
EU:
Luxembourg and Ireland are sought-after domiciles for European investors due to their robust regulatory frameworks. Both jurisdictions comply with AIFMD, allowing funds to access the AIFMD marketing passport for seamless distribution across the EU. This can save time and reduce complexity.
Non-EU:
Jersey and Guernsey are equally respected for their strong regulatory standards and flexibility. These jurisdictions operate outside of the AIFMD, which can mean fewer regulatory hurdles and more efficient fund management, while maintaining high investor confidence.
Tax efficiency
EU:
Luxembourg and Ireland offer attractive tax environments with well-established tax treaties, making them ideal domiciles for tax-efficient fund structures, which enhances returns and boosts fund appeal for investors.
Non-EU:
Jersey and Guernsey are renowned for their zero-tax regimes on fund profits, making them particularly appealing for private equity and real estate strategies. Their tax-neutral status often provides investors with a straightforward and beneficial tax outcome, further increasing their attractiveness as fund domiciles.
Investor preferences
EU:
European investors favor domiciles with a strong regulatory climate, particularly Luxembourg and Ireland, which are known for their stability and well-regulated environments.
Non-EU:
Jersey and Guernsey enjoy a well-respected reputation among professional investors, particularly those seeking flexibility and efficiency in fund management. These jurisdictions are especially attractive for niche funds and alternative investment strategies that may benefit from lighter regulatory burdens while still maintaining high standards of governance.
Fund structure flexibility
EU:
Luxembourg and Ireland offer a wide array of fund structures, such as SICAVs and ICAVs, which cater to various investment strategies. This flexibility allows U.S. fund managers to tailor their fund’s structure to meet specific investor needs and regulatory requirements, whether for hedge funds, private equity, or real estate investments.
Non-EU:
Jersey and Guernsey are equally flexible, particularly for alternative investment funds. Their ability to accommodate complex fund structures while maintaining regulatory efficiency makes them a top choice for managers who want more control over how their fund operates.
Reputation and stability
EU:
Luxembourg and Ireland are established global financial centers with decades of experience in fund administration and a reputation for legal and political stability. These factors make them appealing to institutional investors who prioritize security and long-term growth in the EU.
Non-EU:
Jersey and Guernsey are renowned for their stability and regulatory strength. Both have a long history of catering to international investors and fund managers, making them trusted jurisdictions for cross-border investment activities.
Choice of jurisdiction is a key decision and should be driven by a manager's distribution strategy.
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