Between 92% and 96% of fund managers in Asia, North America, and Africa foresee increased demand for investment vehicles based in international financial centres (IFCs), while only 60% of Europe-based managers predicted the same rise.
The research by Ocorian was conducted with 100 senior-level alternative fund managers, including hedge funds, private equity, real estate, venture capital, and infrastructure.
The three IFCs expected to attract the largest amount of new capital within the next three-to-five years were in the British Virgin Islands, Barbados, and the Cayman Islands.
After these were Bahrain, Dublin, and Curacao.
Vital cog in the machine?
There has been a slew of news about IFCs in recent weeks, with much of it being concentrated on locations such as Nairobi, Kenya, where Prudential recently decided to locate. Within Europe, Alter Domus has opened its own IFC in Cork, Ireland, where it is looking to create over 100 jobs in the financial sector.
On British shores, Brexit is not being seen as a large factor in on how funds choose an IFC, according to Ocorian, which said only a little over a third of respondents (35%) believe that it would have an impact. In comparison, 81% blamed a local skills shortage and 74% spoke about tax increases arising to alleviate economic hardship post-pandemic.
Writing in IFC Review earlier this year, Julian Morris, senior fellow at the Research Foundation, attempted to make the cases that IFCs were a vital cog in the economic machine. Responding to the idea that some NGOs had criticised IFCs for eroding the onshore tax base, he wrote: “But the history of the development of financial centres contradicts this narrative. Attempting to limit the use of IFCs would increase the cost of capital and exacerbate the debt crisis, harming the world economy.”
He added: “Given the importance of these IFCs as facilitators of capital for the US, UK and EU, which result from the combination of their tax neutrality, high quality governance, flexible regulation, specialisation, and associated expertise, there would clearly be huge downsides to any effort aimed at reducing their role.”
Morris cited one estimation from Capital Economics in his argument. “[It] estimated,” he wrote, “that if the up-streamed deposits from Jersey were cut off from the UK, it would create a liquidity loss of 8.6%, which would have to be replaced, leading to a short-term rise in sight deposit rates of as much as 6.4%. Imagine the consequences of such a move in today’s highly indebted world: the shock would lead to an instant credit crisis followed by a recession or more likely a depression, as the UK government was forced to raise taxes to cover its debt burden, harming growth for a generation.”