In a beauty parade of global funds centres, how attractive is the UK? While the UK is still Europe’s leading centre for fund management, its share of fund domicile has fallen in the last decade, losing ground to both Luxembourg and Ireland. It is also under increasing competitive pressure from jurisdictions outside the EU. This uncomfortable truth is highlighted within HM Treasury’s recent UK Investment Management Strategy report in which the UK government publicly commits to reversing the trend.
The report recognises recent failure to adequately address concerns over rules and processes, and highlights insufficient attention devoted abroad to supporting and marketing a key part of the UK’s financial sector. However, HM Treasury believes there is no reason why the UK can’t compete effectively while maintaining a rigorous regulatory approach and a fair tax regime. So how best to meet the challenge of preserving and enhancing the UK’s position as a leading global investment management centre? Here’s a summary of some of the key tax, regulation and marketing measures in play.
The government recognises the importance of a simple, fair and stable tax regime that is competitive. To supplement this, a framework is required that meets investor needs and some foundations have already been laid with the introduction of property authorised investment funds, tax elected funds and the investment management exemption.
Furthermore, a package of new tax measures announced in the 2013 Budget, namely the abolition of the Schedule 19 (stamp duty reserve tax) charge on funds, removes a complication in the tax system and signals the Treasury’s commitment to enhancing the marketability of funds. This should mean that the UK makes more short lists when managers look to locate funds. There has also been additional clarification that managing offshore non-UCITS funds in the UK will not affect the tax residency of the fund. These measures should go some way to achieving the longer-term challenge of selling the UK as a funds centre and supporting its breakthrough into new markets.
In a new era of constructive engagement, the UK authorities have agreed to engage actively with the investment management industry to ensure applications are expedited quickly and efficiently. The UK government has promised to liaise closely on new legislation and promote both European and UK initiatives that support growth.
A promise to effectively implement new AIFMD legislation due in July 2013, which imposes significant costs on the industry, offers the potential to bring fund management business onshore. Concerns around proposed reforms to the Limited Partnership 1907 have now been alleviated by the Treasury’s commitment that these are set to remain an attractive vehicle for private funds.
The UK government now intends to work closely and improve coordination among key industry bodies such as UKTI, TheCityUK and trade bodies like the IMA and the Alternative Investment Management Association (AIMA). The aim is to create a proactive and sustainable investment management marketing strategy to enable the UK industry to target, identify and exploit opportunities using conferences, events, dinners and support for trade delegations. Key overseas investors within important overseas markets such as Asia and the Americas will be specifically targeted.
As well as better coordination, the strategy emphasises on-going industry engagement to anticipate new trends to allow the UK to take advantage of emerging opportunities. A one-stop shop service for fund managers wishing to set up in the UK also looks likely.
So what does the future hold?
Taking advantage of growth opportunities in Asia, such as Islamic finance, and responding to changes in European regulation should all help to rebuild the UK’s share of global business. The traditional fund centres have a clear head start, but the government has set out a strong statement of intent to protect and enhance the UK’s position as a leading global investment management centre.