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Why now is the time for managers to launch a tax-transparent global equity fund

, Aaron Overy

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Why now is the time for managers to launch a tax-transparent global equity fund

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Assets in Irish Common Contractual Funds (CCFs) recently surpassed $100bn according to research from PwC Ireland*. Total sub-funds across UCITS and AIFMD now exceed 200 and this increase has seen 150% growth in just three years as investors become increasingly aware of double taxation treaty benefits.
 

 

How ensuring tax efficiency can benefit asset managers
 

As the demand from institutional investors for Tax Transparent Funds (TTFs) increases, it makes sense for asset managers to offer these structures, particularly through a third-party platform given the level of complexity and knowledge of regulatory environments required. A number of benefits can be achieved in return:

  • Distribution: Global equity managers from outside Europe who want to expand into the European institutional market, can consider a UCITS fund which is also tax transparent as this could give them an advantage over incumbent players.
  • Operational efficiency: Managers which already offer CCFs may need to recognise they are too small to be cost efficient and consider offering their investment strategy in the AMX CCF to benefit from the scale of a platform, achieving the benefits without the associated costs.
  • New client mandates: And managers which do not yet offer tax efficient funds, will need to address this issue if they do not want to lose out on particular mandates, such as global equities, to managers offering these collective investment vehicles.
  • Investors choice and improved returns: As investors become more aware of the improved yield offered by tax efficient funds, they will increasingly challenge managers.

 

 

Common Contractual Funds (CCFs) – two manager scenarios:

  • A boutique UK manager worked with AMX to launch a CCF. Their existing UK unit trust was not as useful as a global vehicle, particularly for accessing markets such as South Africa, Canada or Europe (as well as the UK).
  • Partnering with AMX allowed the manager to offer the fund in an Irish domicile without having to launch a complex structure themselves. This offered tax efficiency to end investors as well as providing ease of onboarding, distribution and reporting for the manager.
  • A global equity manager with an opaque Irish fund was able to offer an average 30 bps tax saving to a UK institution by offering their strategy in an AMX CCF.
  • Having become aware of the potential to remove tax inefficiencies in its current structure, the manager revisited options. However, even for this larger fund house, the cost and effort involved in setting up a CCF would have been substantial. Using AMX allowed for an enhanced client relationship with minimal additional work.

 

Improving investment efficiency
 

While tax transparent funds offer advantages, they are complex structures. The AMX CCF provides the fund structure, the management company and takes care of the operational set up. 

 

 

Asset managers that operate, or are planning to launch, listed equity funds should consider how the use of a tax transparent fund may be of benefit. Use of a TTF may offer superior investment returns for investors through the potential reduction in withholding tax drag, compared with that incurred by traditional pooling vehicles such as unit trusts or open-ended investment companies (OEICs). 

 

It is now potentially more cost-effective than ever for asset managers to derive the advantages of tax transparency, while optimising and creating efficiencies across their fund ranges. 

 

To find out more about using tax transparent funds to improve investment efficiency, download our tax transparent funds report and research findings

 

* July 2020: www.pwc.ie/industries/asset-management/publications/assets-of-irish-ccfs-surpass-100billion-for-the-first-time.html   

 

Photo credit: Pippa Rudling"


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