Industry Comment

What direction should people be heading?

Tuesday, June 07, 2011

It seems as if confusion reigns in the market and we are seeing some advisers suggesting promoters look onshore while others are suggesting offshore. As everyone seems to have vested interest, one way or another, what is the right thing to do?

The answer is that no-one knows for certain and therefore, the prudent approach would be to wait and see.  Waiting is simple, free and avoids the risk of getting it wrong, which could be very costly indeed.  Unfortunately, however, this advice is of little use to those who cannot wait the two years necessary before going to market.

For these promoters, they should ignore politics, promotional literature, trends and other forms of “market intelligence” and base any structuring decisions on hard and unglamorous facts.  In reality, little has changed that in any way influences the traditional private equity model.  This model has evolved over the last 30 years to address a number of commercial, legal, regulatory and tax imperatives that should not be overlooked in a race to accommodate any new developments.  In fact, these developments are not even new in many Member States.

The private equity model is increasingly jurisdiction agnostic and any domicile which meets the necessary criteria should be considered on the merits.  The key is to understand the all-important criteria and leading, international advisers with strong and demonstrable track records in this asset class should be able to identify these with ease.  Good advice is invaluable.

While ESMA’s latest paper on scope does not bode well, properly structured funds will be highly mobile should this prove necessary.

The future of European private equity depends on its ability to attract capital which, in turn, will always be based on returns in the longer term.  European promoters are increasingly competing for this capital in a global context and should not let immediate concerns distract them from the importance of maintaining a strong track record.

To read KPMG's report and their views on investors and the offshore industry click here.