Brexit winners: Ireland and Luxembourg

As the UK risks losing its EU marketing passport, fund managers may consider other jurisdictions, such as Luxembourg and Ireland, to domicile new funds.

In the wake of Brexit, fund managers looking to domicile funds in the UK may now consider other jurisdictions, according to Saloni Joshi, private funds lawyer at MJ Hudson.

“Ongoing fundraising activity is unlikely to be impacted [by Brexit] unless the fund manager was considering basing the fund in the UK. In this regard, other jurisdictions may become more favourable, such as Luxembourg or Ireland,” said Joshi.

Luxembourg is seeing a lot of interest for its new Reserved Alternative Investment Fund (RAIF) structure, which launched today, according to Kavitha Ramachandran, senior manager of business development at fund administrator Maitland. The RAIF is designed to speed up the establishment of funds because – unlike existing structures, such as “SICARs” – it does not need approval from Luxembourg’s financial regulator, the CSSF.

The Republic of Ireland may also become a popular fund domicile choice following Brexit, because of its continued membership of the EU and hence its Alternative Investment Funds Managers Directive passport, which fund managers can use to market to EU investors. Ireland also boasts a new fund structure: the Irish Collective Asset-management Vehicle is subject to fewer Irish and European company laws, which should result in lower administrative costs. It also allows US investors to avoid certain adverse tax consequences that would normally apply to passive foreign investment companies.

“With innovative products like the RAIF and ICAV, Luxembourg and Ireland are domiciles that are well positioned to offer services to fund managers in the wake of Brexit,” said Ramachandran.

Yesterday Amsterdam-based law firm AKD announced its intention to open an office in Luxembourg as it seeks to capitalise on client demand for post-Brexit advice, as reported by pfm. “Our clients are seeking ways to avoid the potentially difficult and costly fallout of the Brexit vote,” said managing partner Erwin Rademakers.

In recent months other fund domiciles, such as Malta, Guernsey and Jersey, have also been racing to provide fund managers with EU marketing options.

Luxembourg and Ireland will not be alone in benefitting from the potential loss of the UK’s marketing passport, added Joshi: “Fund managers are likely to consider other jurisdictions equally.”