6 October 2010

1. The future of manager migration, fund servicing and domiciliation in the Mediterranean: The alternative to Ireland & Luxembourg?International fund investment 6 October 2010

2. INVESTORS Q1) Would you prefer to allocate to alternative investment products that are domiciled in the EU as UCITS funds than traditional offshore funds that are less regulated? • Most investors are used to allocating to offshore alternative funds – and are content to continue, especially as many of these funds are listed on the Irish Stock Exchange. • It is the liquidity and transparency that alternative UCITS funds offer investors that is their main attraction – not so much that these funds are domiciled onshore. Source: International Fund Investment 2010

3. INVESTORS Q2) Do you welcome the anticipated growth in regulation in Europe and the US? The majority believe that regulation will add to costs, hurt performance and make it more difficult for small start-ups, which are considered an essential ingredient in the evolutionary hedge fund industry. Several welcomed more regulation in the US as that is where the scandals tend to occur; but not in Europe. Source: International Fund Investment 2010

4. INVESTORS Continued... “Hedge funds were not out of control; they did not cause the crisis.” “There have been no real scandals in the European fund industry.  The talk of extra regulation is “creating insecurity amongst investors.” “The industry is called alternative because it is alternative. Why should it become a mainstream industry? Alternatives should be only be handled by those who have more skill.”

5. INVESTORS Q3) Is the domicile of a fund becoming more important to you? • In the post crisis era more intensive due diligence checks are being done on managers (including by investors using fund of funds who want more info on the underlying managers). • Investors are aware that the regulatory climate is changing (AIFM) and that domiciliation is part of this. • About half of those who said domiciliation hasn’t become more important to them, remarked that this is because it’s always been important. Source: International Fund Investment 2010

6. INVESTORS Q4) How much do you take into consideration the regulatory status of a fund’s domicile when considering making an allocation to it? What matters to investors are the tax implications and the legal structure of the fund – whether it’s a UCITS fund, a traditional offshore fund, a PIF, QIF, etc. The individual regulations in particular domiciles have little bearing on investors’ allocation decisions. No investors expressed views on individual regulatory regimes of one domicile over another. For example, no one said they prefer Guernsey to Jersey or Luxembourg to Malta, etc.

7. INVESTORS Q5) What views do you have on: Gibraltar, Ireland, Luxembourg, Malta? • What matters to investors is that the domicile in question is well known. Investors also prefer to use domiciles that are largely used by other investors and managers. • As one interviewee put it, “we don’t like surprises.” • Ireland and Luxembourg are known to all respondents and therefore liked for this reason. • The majority of investors (83%) are aware that Malta is becoming commonly used as an alternative to Ireland and Luxembourg. • Gibraltar is less well known by professional allocators.

8. FUND MANAGERS Q6) Are you considering the possibility of moving your business, as a number of other fund managers have done recently? “The supposed benefit of AIFM (wider distribution of alternative funds within the EU) is of no interest to us but the restrictions that this measure are likely to impose upon us are quite possibly considerable ... If this happens we may be forced to leave.” “If AIFM turns out to be as restrictive as some say it will be then we will have to seriously consider our position.” Source: International Fund Investment 2010

9. FUND MANAGERS Q7) If so, how likely is it that you’ll move in the next two years? 55% of those considering to relocate are likely to go in the next two years “The supposed benefit of AIFM (wider distribution of alternative funds within the EU) is of no interest to us but the restrictions that this measure are likely to impose upon us are quite possibly considerable ... If this happens we may be forced to leave.” “If AIFM turns out to be as restrictive as some say it will be then we will have to seriously consider our position.” Source: International Fund Investment 2010

10. FUND MANAGERS Q8) If you are considering moving what are the key reasons why? • There are wide-scale concerns about taxation, followed by questions brought on by the uncertainty of AIFM • In the words of one manager: “Overall sentiment has turned negative.” Source: International Fund Investment 2010

11. FUND MANAGERS Q9) Do you think that the vast majority of alternative fund managers will continue to be based in the US/UK in the future or will the industry be run from a broader range of locations? 96% believed that the alternative fund investors will be run from a broader range of locations. Source: International Fund Investment 2010

12. FUND MANAGERS Q10) If you are considering moving, which of the following locations you are looking at? Source: International Fund Investment 2010

13. Q11) Have you or are you considering redomiciling your offshore funds to the EU ? 18% of managers have either redomiciled their offshore funds or are planning to do so within the foreseeable future. Source: International Fund Investment 2010

14. Q12) If you aren’t likely to redomicile are you considering launching mirror funds in the EU? 44% have launched,or are about to launch funds in the EU – predominantly alternative UCITS funds 62% of all interviewees will have some or all of their funds domiciled in an onshore European jurisdiction, when you add this 44% to the 18% that claim to be redomiciling funds to the EU Source: International Fund Investment 2010

15. Q13) In which jurisdiction are you likely to domicile your EU based funds? Source: International Fund Investment 2010

16. Q14) Do you think that the growth in alternative fund regulation will have any real impact upon patterns of fund domiciliation? Proportion of respondents (%) Source: International Fund Investment 2010

17. Q15) If yes, in what ways do you anticipate that the growth in regulation will impact fund domiciliation decisions? • A number of those that believe regulation will impact domiciliation patterns thought that this could benefit offshore domiciles. Many interviewees consider that AIFM, for example, could drive managers out of the EU. If this happens they will use offshore jurisdictions as locations for their funds. • But the majority believe that the overall increase in regulation (often allied to investor demands for funds to be onshore) will require funds to be based in EU jurisdictions – at least for those managers serious about distributing funds within Europe.

18. Q16) How much are your domiciliation decisions governed by the views that your prospective investors have on this subject? • The overwhelming majority of managers say the views of their prospective investors influence them heavily – and that allocators’ views are becoming more important. • Manager comment: “Prior to the credit crunch, Madoff, etc. domiciliation was rarely ever raised in meetings with prospective investors…..today it comes up more often – it appears on more people’s check lists.”

19. FUND MANAGERS Q17) What do you know about the Mediterranean fund domiciles? • 76% are aware of Malta; 42% Gibraltar • A few respondents made reference to the cost of being in Ireland and in particular the fees charged by Dublin based lawyers. Maltese lawyers are considered more reasonable. • The MFSA was praised for being very responsive by all those interviewees that had come into contact with it. • Whilst relatively little is known about Gibraltar, two interviewees are considering basing themselves there. • “Two years ago I wouldn’t have considered it but it now appears to be gaining momentum.” • “We are setting up an office there right now…we like the fact that there are other managers already there.” Source: International Fund Investment 2010

20. FUND MANAGERS Q18) Would you consider locating your funds in Malta or Gibraltar as an alternative to Luxembourg or Ireland? Source: International Fund Investment 2010

21. FUND MANAGERS Q19 Do you have any views on the regulatory environment in the Mediterranean domiciles? All those that have visited the MFSA have positive comments to make about the proactive approach that the Maltese regulator has taken. One manager said that this was “Malta’s biggest selling point.” Q20) Do you have any views on the quality of fund service provision in the Mediterranean domiciles? No comments received but respondents are aware that several service providers have opened in Malta recently. Source: International Fund Investment 2010

22. Overall conclusion • Most investors (60%) are against more regulation • Whilst a majority of investors say it makes little difference to them as to where their funds are domiciled, roughly a third prefer them to be EU based • Only 4% of managers think the UK and US will remain as dominant in the alternative fund industry in the future; 96% believe it will become run across more locations • 22% of managers are considering leaving the UK, while 14% say they’re likely to go • Tax is the most important driver for wishing to leave • 18% of managers have redomiciled funds or are planning to • 44% of managers have launched EU domiciled ‘mirror’ funds or are planning to • Therefore the majority of alternative managers interviewed are redomiciling or are launching funds in the EU (62%). • Malta is the best known Med domicile, with 76% of interviewees aware that it’s an option for EU fund domiciliation. Managers are looking to use it as either a base for their funds and/or to open an office.