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Edouard Eloy, Director at Equitis, a member of SGG Group asks what the future for fund domiciliation in France holds
The funds industry in France has a long history and a successful track record, but what does the future hold in light of a number of changes on the horizon, and can these be harnessed to reinforce the position of France as a domicile for funds?
At European level, Luxembourg has a well established position as the leading domicile for funds, while France has been positioned further down the rankings in recent years. For example, a survey conducted by the Economist Intelligence Unit on behalf of Matheson in 2014, entitled ‘Choosing a fund domicile: the views of global asset managers’ interviewed 200 global asset managers on their views regarding the leading European investment fund domicile and which jurisdiction they would choose if starting over.
The survey ranked France in fifth place, after Ireland, Germany, Luxembourg and the UK, with 23 per cent of managers giving it a “top three” preference. France ranked further down the list of preferences when it came to the best regulatory conditions, best legal and tax
framework and best business conditions, where it came in sixth place, after the Netherlands, on each indicator.
It seems, therefore, that France may have unrealised potential when it comes to funds, if we look at the broader strength of financial services in the country. The wider French asset management sector, beyond investment funds, has performed well in recent years, with a sophisticated market and total assets worth nearly €3.8bn, according to the French Asset Management Association (Association Française de la Gestion Financière). The asset management industry employs over 85,000 people, including 26,000 directly in asset management companies and the rest in affiliated services, which makes a major contribution to the French economy.
If we return to our original premise, what are the changes which could affect the attractiveness of France as a funds domicile? The impact of Brexit is being keenly observed, given that the UK’s impending departure from the EU single market will mean that funds domiciled in the UK will no longer be able to avail of the EU “single passport” which permits the marketing of funds cross-border within Europe. This could lead to new opportunities for French asset management firms. However, there is a further point at the human level which could be just as impactful, as French people who are already living in the UK and working in financial services may decide to return to their home country. The French Ministry of Foreign Affairs has estimated that there could be as many as 250,000 to 300,000 French residents living in the UK, and around half of these are believed to live in London. It remains to be seen if French people working in financial services will wish to remain, or even be able to remain, in the UK post-Brexit. Returning to France could become an attractive option.
Looking at the wider climate in France, the business-friendly policies of the new administration are giving the economy a new lease of life and drawing international attention. Over the past year, a swathe of reforms have been enacted to French labour laws, along with a set of budget measures to cut corporate tax and abolish a wealth tax on all but property assets, and the introduction of a flat tax of 30 percent on capital gains, dividends and interest, which can provide a direct boost to the appeal of France as a funds domicile.
In November 2017 a survey of 156 top executives of US groups’ French divisions by the American Chamber of Commerce and Bain & Company showed that 52 per cent were now planning to add more staff in France over the next two to three years, as compared with only 21 per cent the previous year. This is very encouraging for growth prospects.
So which new market entrants can France now seek to attract in the light of these developments? First, large US funds that need to enlarge their fundraising may look to continental European investors. In order to catch them, they need to propose a continental legal set up - possibly in France and Luxembourg – and these vehicles will then co-invest with the US fund or feed it under a master/feeder structure. Second, investors recognising that the French market is attractive, may decide to invest in this area.
In order to source top quality opportunities it will also be necessary to have local offices.
Finally, can France truly embrace innovation? Traditionally, fund managers in France tend to be rather ‘old school’ in their methods. There is now a chance to enter into the digital era with gusto and reinvigorate the industry. If we look around Europe, we are already seeing moves in Luxembourg and the Netherlands to innovate in the funds ecosystem. The Luxembourg House of Financial Technology has been formed and the Netherlands is running a regulatory sandbox.
The French government has launched some important initiatives such as “La French Tech” to stimulate jobs and growth for start-ups in France and abroad. It is already gaining traction. France now has a chance to harness the positive energy arising from these developments and channel it into a vibrant and forward-looking funds industry to strengthen its position as a funds domicile for the years to come.