Developments in Offshore Permanent Capital Vehicles
The opportunities for raising capital outside of the United States are evolving as pools of offshore capital grow and investor appetite for product changes. So, where is the growth in financial assets? How can U.S. advisers access these opportunities? At Dechert's Permanent Capital Summit, the “Developments in Offshore Listed Funds” panel addressed these questions and offered the following key takeaways.
- Global private financial wealth is expected to grow to US$222.1 trillion by 2019 with the fastest growing markets occurring outside of the U.S. in jurisdictions in Asia (US$7.5 trillion) and Latin America (US$6.6 trillion).1 Institutional and retail investors are seeking non-traditional sources of growth and income from asset managers. Accessing this tremendous opportunity is driven by the distribution strategy of an investment manager that should focus on the type of investors, their geographic location and their appetite for certain product “wrappers.”
- A number of U.S. asset managers have raised capital outside of the United States from (among others): (i) sovereign wealth funds; (ii) pension funds; and (iii) private banks with high-net worth investors, as commercial banks expand their private banking services. The ability to access these types of investors is driven by their need for liquidity, certain investment strategies, regulation and local taxation.
- In developing a successful distribution strategy, investment managers should consider their available distribution resources, the types of products that will be most appealing to local investors from a tax and regulatory perspective (including the effectiveness of a local listing), whether local resources with specific expertise and skills are required for a successful effort, buying behaviors and local cultural differences.
- Generally, it is becoming more difficult to offer and sell U.S. products offshore, though this may be permitted in some markets. Tremendous demand exists for alternative products. In this regard, open-end funds are likely to be subject to more regulation, and fee pressure, than permanent capital vehicles such as closed-end funds. Product “wrappers” can be used to meet specific country-by-country eligibility requirements or to make products more attractive to local investors in specific markets. A listed fund “wrapper” around a private equity fund, for example, can create liquidity and provide investors a high degree of comfort by facilitating a listing.
- Depending on the target market, a closed-end listed fund or other permanent capital vehicle can have a lot of appeal for both investors and an investment manager. EU closed-end funds and local closed end fund vehicles in Mexico were cited as two types of permanent capital vehicles that are receiving renewed interest outside of the United States in net asset gathering exercises among U.S. managers.
1 Global Wealth Markets - Sizing Database (2015).