Why are South African Fund Managers being chased overseas? Why is London the financial capital of Africa, rather than Johannesburg? Fund Manager legislation – tax and financial regulation – means that Fund Managers who operate from within South Africa create a tax footprint for their clients, a disadvantage that does not exist in the UK (of all the funds managing in the UK, only 14% are domiciled in that country). Maitland believes that those Fund Managers sitting in London should be in South Africa, and is lobbying the South African Treasury, in collaboration with the ASISA, to change this legislation to be more favourable to local Fund Managers.
Maitland is not arguing for reducing tax revenues; on the contrary, new revenues could be created by realising the significant opportunities that managing assets from South Africa creates. South Africa has the economic infrastructure to attract fund management business, but must recognise that it is operating in a competitive environment in which a conducive and proactive regulatory approach is a minimum requirement; it needs to create a regulatory framework that will attract overseas investors. A Fund Manager exemption means that there would be no tax on the source or investor base, but only on residential.
What makes a good fund jurisdiction?
Regulation has long been an area of international competition with jurisdictions competing to attract financial services business. Probably the best known example is Dublin, which by establishment of its International Financial Services Centre in 1987 (created following The Finance Act of 1986), positioned itself as a jurisdiction of choice for investment funds. There is very little doubt that the adoption of this policy has been the single biggest factor which drove the economic recovery of Ireland.
Although London is well recognised as the financial centre of Europe, the policies which caused this to come about and be maintained are less well known. According to the Investment Managers Association of the UK, just 14% of the assets managed in the UK are locally domiciled – the remaining 86% are attracted from elsewhere. These funds and the service providers who administer them are attracted to the UK because the authorities have, as a matter of clear policy sought to create a positive and conducive environment for the conduct of this business.
The UK and Dublin are not alone in actively competing to attract financial services – most recognised jurisdictions actively manage the regulatory and broader commercial framework towards this end. Long established players such as Luxembourg and Switzerland actively vie to attract business along with new and emerging ones such as Dubai. In their own limited way, Botswana and Mauritius are local examples.
It needs to be stressed that competing for this business does not necessarily entail lax regulation, generous tax concessions and secrecy. “Offshore “ jurisdictions which promoted themselves on this basis have increasingly fallen out of favour while those which have offered a sound and appropriate regulatory framework have fared relatively better. What the most successful jurisdictions have in common are:
- A regulatory framework which is actively managed to ensure that it remains aligned with emerging best practice.
- A range of structure options with appropriate levels of regulations which accommodate differing investor needs.
- A supportive fiscal framework which ensures that the domiciliation of the fund or the provision of services from within the jurisdiction do not result in financial prejudice to investors.
None of the above is required to be implemented in a way which is prejudicial to the safeguarding of investor interests or result in a loss of revenue to the fiscus. Indeed the attraction of fund managers and associated service providers should be revenue enhancing.