Cross Border Funds Done Right

Last Updated on June 16, 2023

Many of the top hedge fund managers are looking for alternative investment paths like cross-border investments.  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 do investors and fund managers do? 

Setting up cross-border funding 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?

What are Cross Border Funds and Cross Border Investments?

Cross-border funding and cross-border investment involve allocating capital and assets across national boundaries to explore investment opportunities in foreign markets. It encompasses various investment forms, including foreign direct investment (FDI), portfolio investments, mergers and acquisitions, joint ventures, and strategic partnerships. 

These activities enable individuals, companies, or institutions to expand their investment horizons beyond their home country and tap into the potential benefits offered by global markets.

Engaging in cross-border funding and investment provides investors with opportunities for diversification, access to new markets, and potentially higher returns. It allows them to allocate their capital across different countries, industries, and asset classes, spreading the risk and potentially enhancing their investment portfolios. 

Deploying Investments and Capital Across Borders

Cross-border funding and cross-border investment play a significant role in today's global economy. However, engaging in such activities requires a thorough understanding of the complexities and challenges that arise when capital flows across different jurisdictions.

Regarding cross-border funding, navigating the intricacies of local regulatory frameworks and compliance requirements is crucial. Each country has its own set of rules and regulations governing investments from foreign sources. These regulations can cover many aspects, including capital controls, taxation, reporting obligations, and licensing requirements. By familiarising themselves with these regulations, investors can ensure compliance and mitigate potential risks and obstacles.

Similarly, cross-border investments involve allocating capital across national borders to access diverse markets and investment opportunities. This practice enables investors to diversify their portfolios and achieve higher returns. However, it also introduces legal and regulatory disparities, cultural differences, and market dynamics challenges. Understanding the local business environment, including the legal and regulatory frameworks, is vital for successful cross-border investment.

In addition to navigating regulatory landscapes, cross-border funding and investment require careful consideration of factors such as foreign exchange risks, political stability, market trends, and economic conditions. Thorough due diligence and risk assessment are essential to identify potential pitfalls and maximise the chances of success.

Moreover, establishing reliable networks and partnerships with local experts and advisors can provide valuable insights into the target market's nuances and facilitate smoother cross-border investment transactions. These professionals can offer guidance on regulatory compliance, local business practices, and market entry strategies.

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 COVID-19 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. 

Want to establish your footprint in Singapore or elsewhere? Look no further; start it with Lanturn. 

Contact us now!