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The Lanturn Blog

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CORPORATE SERVICES

Cross Border Funds Done Right

December 2021

Andrew Macintosh

At the same time inflation casts a shadow over the economy and low-interest rates knock fixed-income investments like government bonds, the stock market is thought to be overvalued. What are investors and fund managers do? Many of the top hedge fund managers are looking for alternative and cross-border investments.  Setting this up is not a one-and-done process; it is time-consuming and complex. So, how can one establish investments and capital across borders the right way? 

 

Deploying Investments and Capital Across Borders

Each country has its local regulatory requirements and cultural norms which need to be considered before deploying capital and establishing an investment fund. These regulatory requirements can range from accounting and tax to how an investment is offered and marketed.  In Luxembourg, fund managers must adhere to the regulations set by The Commission de Surveillance du Secteur Financier (CSSF). Meanwhile, in Indonesia, one must comply with the Financial Services Authority.  Both allow mutual funds and alternative investments from different asset classes to be invested. However, you will probably find more Shariah-compliant investments in Indonesia. This happens due to the cultural makeup; Indonesia has a large Muslim population, whereas Luxomborg does not.   This is where having a local footprint makes a huge difference. Hiring local talent to keep up with local regulations and understand the needs of local customers is one of the best ways to prevent unexpected problems. While technology makes it easier to work globally and remotely, strict regulations like the Economic Substance Laws of the EU require fund managers to establish a substantial on-the-ground presence to carry out their investment duties. 

 

Fund Managers: Two Case Studies for Cross-Border Investments

 

Fund Managers in Singapore

Over the last two decades, Singapore’s asset management industry has increased exponentially. This can be seen by the fact that more people are turning into stocks as their investment strategy during the ongoing pandemic. Concurrently, Singapore has made significant efforts to ensure transparency and integrity in its asset management industry through anti-money laundering regulations (AML) and know your customer (KYC) practices.  Yes, complying with these regulations can be a burden for fund managers and institutions. However, failure to do so can result in hefty fines like a private Swiss bank with a Singapore branch had experienced.  They were fined S$1 million by the Money Authority of Singapore (MAS) for lax AML practices. This is where having local knowledge comes into play. As the saying goes, it is better to be safe than sorry. 

 

Fund Managers in Luxembourg 

With over 5 trillion EUR in assets, Luxembourg is Europe’s largest centre for investment funds. It is a hub for private equity, private debt, real estate, and infrastructure funds. It has implemented the EU’s Alternative Investment Fund Managers Directive (AIFMD) into law for more than a decade. The law has since been expanded to include several different investment schemes or funds. A few of these schemes include the reserve alternative investment fund (RAIF),  the common limited partnership (SCS), the specialised investment fund (SIF), and the special limited partnership (SCSp). Each of which has its own legal forms, tax qualifications, reporting requirements, and regulations. One must consider the investor profile and the right investment under each scheme. In today’s fast-paced investment world, having alternative investment plans is essential to guarantee better returns, including starting up a fund elsewhere, outside your region and jurisdiction. Whether you are considering Singapore investments or anywhere else, it is not a one-man process; there are many stakeholders, including the government and investors themselves. Therefore, asking for local expertise or a third party with a global footprint is essential so you can give investors the best result for their investment. 

 

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