Isle of Man pitches for business in the new PE environment

The recent announcement of a new "private equity proposition" by the Isle of Man's Department of Economic Development (DED) was timed to coincide with the BVCA's 2010 Summit in London, an event at which the DED was well-represented. The proposition is effectively the latest evolution of the Isle of Man Specialist Fund (IoMSF)- a structure aimed squarely at the private equity and alternatives segment and first launched in 2007.

The IoMSF, aimed purely at institutional and high-net-worth investors (ie those deemed to be "specialists") can be marketed and promoted anywhere in the world, subject to local rules, and can be established and incorporated in any jurisdiction. It also offers the possibility of different structures to suit specific requirements: IoMSFs can be set up either as companies, unit trusts or limited partnerships. Meanwhile the island itself offers a tax-efficient jurisdiction in which to operate, including no capital taxes, no VAT and zero-rate corporate and income taxes.

Effectively, the structure recreates the main advantages of the more established Channel Islands LP structure, with the additional benefit that they can be set up and administered at a much lower cost base than other locations. The other key advantage, as a member of the island's Fund Management Association points out, is capacity. Other jurisdictions, such as Guernsey, will be running into capacity issues when funds raised in the boom years start to come towards the end of their lives and need to be wound up.

But how hard will it be for the relative newcomer to dislodge the established leaders in this market, be they from the Channel Islands, the Caribbean or elsewhere? There is some precedent which does not augur well for the Manx lobby: Luxembourg has focused its own sizeable marketing and lobbying machine on trying to build a profile in the private equity business for some time and, despite having other factors in its favour (EU ties, human resources and geographical advantages), it has only attracted a relatively modest number of private equity funds.

According to one fund services expert, the Isle of Man authorities face two main challenges: firstly, as mentioned above, it is hardly the best time to be trying to attract nervous fundraisers. But perhaps more important is the fact that the private equity industry is an inherently conservative one, with much of its business conducted on the basis of tried and tested relationships.

While the IoM-based professional concedes that it will indeed be difficult to dislodge these established relationships, he explains that the island's core targets will probably not be those groups raising their eighth fund: "The private equity industry has changed a lot in the last couple of years and will continue to do so. The market will undoubtedly see new spinouts and specialist niche funds in the next few years and the Isle of Man could provide a strong service to these smaller, more cost-conscious players."

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