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Man of the moment

Fund management Brian Donegan, finance director for foreign direct investment on the Isle of Man, explains how the island is forging ahead to realise its fund management ambitions.

The island has real ambitious targets for growth in the area of fund management and this is a real step forward in realising these ambitions.

A major report to review the island’s fund sector has been completed and the reforms are anticipated to secure the future growth and development of the industry and assist with achieving the ultimate objective of US$50bn of funds under management and US$100bn of funds under administration on the island by 2010.

The Isle of Man’s fund industry accounts for around 6 per cent of the island’s overall growth domestic product. The finance sector as a whole accounts for up to 39 per cent of the island’s total GDP. It is a key element of the island’s economy and the Government is serious about bolstering its position in the market for offshore fund domiciles.

The fund sector has seen strong growth in the past few years. From 2003 to 2006, the level of funds under administration in the island has more than tripled, with a significant amount of growth coming in the last year. Funds under management on the island have risen from £15bn in 2005 to £21bn in 2006. In October 2006, the figures stood at over US$36bn of assets under administration and US$7bn funds under management.]

This rapid growth has primarily been driven by the initiatives introduced in 2003. These included the removal of VAT on fund vehicles, the implementation of a zero rate of corporate tax for fund managers and administrators and the ending of dual regulation of funds not domiciled in the Isle of Man. All these factors have made the island an attractive place for fund business, rivalling competitors like Jersey and Dublin.

However, it was felt by local industry leaders that a review of the sector should be undertaken to secure its longer-term prospects and to make the Isle of Man the preferred offshore jurisdiction for fund activity.

The Funds Review group was established in 2006 under the sponsorship of the Isle of Man finance steering group composed of both public and private sector representatives.

The group was chaired by Paul Smith, ex-global head of HSBC’s alternative fund services division, and a leading expert from the international fund industry. Paul’s external position has meant that the review has always had a clear focus on the outcome of how the Isle of Man fund industry wishes to be perceived by the global audience.

The findings of the review were delivered in the form of a report – the Smith Report – which was announced by Treasury minister Allan Bell in the 2007 Isle of Man Budget.

The report recommended several ways to assist the island in establishing itself as a major force in the global fund management industry, offering the resources for the establishment of front, middle and back-office fund operations. The main recommendation of the report was the need to increase marketing activity in order to further raise the profile and awareness of the Isle of Man as a fund centre.

Therefore, it was great news when, as part of the 2007 Budget speech, the Treasury Minister announ-ced his financial support to boost activity.

Other recommendations of the report included the introduction of a new specialist fund whose characteristics include a US$100,000 minimum initial subscription, the flexibility to base management and/or administration in other jurisdictions, no restrictions on investment strategies and a light touch regulatory approach. This is expected to be introduced in 2007.

It is hoped that these measures will make the Isle of Man the most attractive domicile for specialist funds for London-based fund managers and also the preferred location for front and middle office functions for global fund managers.

If the report’s recommendations are introduced, the wider resulting benefits to the financial services industry and the island as a whole are enormous. If the sector grows, then so will the high-level jobs and skills available, ultimately providing an environment of higher job satisfaction and career opportunity and development, which is a key factor of the Government’s economic strategy.

The review of the fund sector is proof that the Isle of Man is making a real effort to be at the forefront of global developments and prepared to make adaptations in order to maintain this premier position. This is why similar reviews are expected to take place in other sectors of the island’s finance industry.

Last month, the Manx Insurance Managers Association, an industry association who represent the interests of the captive insurance sector on the Isle of Man, announced that the Isle of Man Government is to work with them to undertake a strategic review of the Island’s captive insurance sector at some point during the second half of 2007.

The review will consider all aspects affecting the industry with the overall aim of ensuring that the Isle of Man is positioned strategically to take full advantage of the opportunities which exist globally within this sector.

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