Offshore Fund Opportunities in Europe

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Offshore Fund Opportunities in Europe

The Custody team at Kotak Mahindra Bank recently hosted a seminar on “Offshore Fund Opportunities in Europe” for its key clients and partners.
The event was designed to give our clients an overview of everything that businesses need to create and distribute funds in
European markets.

The event included addresses by Uday Kotak, KVS Manian (President – Corporate Institutional and Investment Banking, Kotak Mahindra Bank), Christoph Lanz (Edmond de Rothschild), Siddharth Shah (Khaitan & Co.), Rajesh Gandhi (Deloitte Haskins & Sells LLP) and Christophe Saint-Mard (PwC Luxembourg).

Why explore these opportunities? – Uday Kotak & KVS Manian

Recent events like the Star IPL Bid have led us to believe that Indian companies are ready to pay for an asset which is neither tangible nor physical.
This is a big change from 5-10 years ago. At the same time, the Indian economy is witnessing huge inflows of local and foreign
funds across alternate asset classes.

European and American FPI investments are growing at speed – Europe grew from USD 30 Bn to USD 90 Bn between 2012 and 2017. Luxembourg alone contributes more than 40 % of European flows. We further believe that regulatory changes like the ban on unhedged derivative positions by P Notes will encourage more FPI flows.

Finally, amendments in the tax treaties of Singapore and Mauritius are leading to increase in European domiciled funds, making Europe an attractive opportunity at the present moment.

Fund structures

Two types of structures are available to Indian firms looking to expand to Europe. These are the Rent-a-Fund structure and the Captive UCITS fund structure
Funds starting their UCITS journey are encouraged to explore the Rent-a-Fund facility. This structure is beneficial for its lower cost structure and quicker time-to-market
The Captive UCITS fund structure, on the other hand, comes with lower contagion risk and higher control
UCITS funds can be marketed to European investors, both retail and institutional

Taxation aspects

With the recent changes to Indian tax treaties with Mauritius and Singapore, implementation of GAAR as well as introduction of MLI, it is imperative to ensure that any tax efficiencies in the structure are evaluated end to end
The discussion highlighted some structuring solutions where Master Funds can be set up in a tax efficient geography whereas the Feeder Fund would be the Luxembourg based UCITS Fund
Since AIF 3 structures in India have not been granted pass-through status, it was pointed out that the determinate trust structures are being explored by fund managers

Distribution

Distribution is a key success factor for a fund in Europe, and a fund must decide on a clear distribution strategy before launch. A fund structure alone does not necessarily mean that the investors will be convinced of investing their monies
UCITS structures are mainly domiciled in Luxembourg and Ireland, and US fund managers are the largest players in this geography. UCITS funds are typically more acceptable to investors if they are based in Luxembourg
All fund managers setting up first time UCITS funds have to invest time in selling and distributing their fund in association with local players to create more awareness of their name and product since they are competing with a number of existing European funds. It is important to find the right partners and target the right geography once the fund and investment strategy are finalized.

Interested?

Kotak’s Custody team has provided a one stop shop service for FPIs since 2005. We offer Custodial, PCM Clearing and Fund Accounting Services supported by a state of the art online platform. We also offer the Global Custodian collaboration with Edmond de Rothschild for Custody Services and GIFT City capabilities

Via our partnership with EDR, we will be able to offer a full-fledged set of services covering the set-up of a Management Company, Depository and Fund Administration.

To know more about Kotak’s custody services, click here. To know more about the services available to you via our collaboration with Edmond de Rothschild, click here.

To speak to someone about this subject, please write to [email protected]