Working group calls for onshore hedge funds in UK

A working group of senior asset management professionals has recommended UK authorities work towards implementing an onshore hedge funds regime.

The asset management working group, set up by the UK Treasury said the changes heralded by the European draft alternative investment fund managers (AIFM) directive represented "a chance for the UK potentially to secure domicile" in addition to being the location of choice for fund managers.

A report released by the group said the government, the industry and the Financial Services Authority (FSA) would need to consider a number of regulatory and tax issues.

The group, co-chaired by the Chancellor of the Exchequer, Alastair Darling, said the UK should aim to become "a domicile of choice for collective schemes".

The report said the upcoming changes to the Ucits directive combined with the "welcome simplification of the UK tax regime for offshore funds" would bring scope for rationalising fund ranges.

Comparing the UK's qualified investor schemes with the Luxembourg specialised investment funds and Ireland's qualified investor funds, the group suggested changes to the FSA's rules to speed up the launch process for such vehicles.

The group also called on the FSA to expand the class of collective investments it was empowered to authorise. It also noted that rules would have to allow for prime brokerage arrangements if hedge funds were to be able to domicile onshore in the UK.

The report said the government would need to consider how hedge fund managers would be treated on non-domicile tax issues, and how the regime for non-domiciled investors would operate.

"Where hedge funds invest in other offshore funds (through fund of funds structures), they will wish to have certainty that these offshore funds will be taxed as investing and not as trading. Industry therefore believes that the definition of 'offshore equivalent funds' should accommodate as many investment vehicles as possible," the report added.

The report also discussed issues such as pension funds. It called on industry and the government to work together to ensure "open and fair access" to overseas markets for the asset management industry.

The group said the government should "seek reform of current institutional and legislative structures in the EU which tend to exclude investment management from the pension environment."

Members of the group included Marshall Wace chairman Paul Marshall, SVM managing director Colin McLean, and the head of JP Morgan Asset Management's UK business, Campbell Fleming.