In the ever-evolving landscape of private credit funds how do you know if your fund domicile is the most strategic choice?
Recent research published by the Alternative Credit Council and Dechert LLP reveals that Luxembourg and the Cayman Islands continue to dominate as the preferred fund domiciles for private credit fund managers investing in EU-based private credit assets. A significant 59% of respondents have a fund based in these jurisdictions, with the Luxembourg Reserved Alternative Investment Fund (RAIF) being the vehicle of choice. The US, Ireland and the UK were the next most popular fund domiciles amongst respondents.
The research underscores how investor preferences are often the main driver in the selection of fund domicile and are typically influenced by a number of factors including familiarity, marketing restrictions, tax neutrality, and regulatory certainty.
Private credit fund managers are continuing to mitigate the exposure of non-US investors to the Effectively Connected Income (ECI) rule through a range of structuring solutions which vary depending on the domicile of the fund.
Key Issues To Consider Now
- It is vital to balance numerous factors when selecting credit fund jurisdiction. While investor preference is often the main driver, other considerations such as treaty access, the ability to demonstrate substance, familiarity, service provider capacity and cost, and regulatory certainty, need to be top of mind.
- Managers need greater certainty and consistency of structures in order to increase efficiency and decrease costs and better support greater volumes of non-US capital investing in US assets.
Fund domiciles preferred by private credit fund managers
Footnotes
Based on insights from a survey of 40 private credit managers and a series of one-on-one interviews with private credit managers across a broad cross-section of jurisdictions and representing an estimated US$800 billion private credit assets under management.
