Intertrust: PMs Under Increasing Regulatory Pressure

June, 2017

Four in 10 alternative asset managers have said they are under pressure to review their investment structures and potentially strengthen them in order to ensure they are BEPS-compliant, according to new research commissioned by Intertrust.

The Base Erosion and Profit Shifting regulation (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. In June at the annual OECD Week, 76 countries and jurisdictions signed, or formally expressed their intention to sign, an innovative multilateral BEPS convention. This will swiftly implement a series of tax treaty measures to update the existing network of bilateral tax treaties; another regulatory factor managers will need to consider.

Other areas managers are reviewing in an attempt to ensure compliancy include their accounting systems (30%), management structures (30%), financing structures (29%), REIT-type structures (34%) and underwriting and valuation models (14%).

Common Reporting Standards (CRS) was also highlighted as a concern in the report, which surveyed over 70 alternative investors. 62% of managers said their organisations are either restructuring their existing information reporting operations to support the growing obligations under CRS, or recognise the need for more consistent governance, technologies and processes. Only 11% said that no changes are currently needed.

The survey highlighted the extent to which regulatory change or review is affecting alternative asset managers, and helping to push towards taking a more defensive approach.  60% reported that they anticipate having to make additional investment in their business – in procedures, personnel or systems – to continue to manage all of their regulatory obligations as requirements across the board increase.

Paul Lawrence, Global Head of Funds at Intertrust, commented: “In the current climate of increasing regulatory reform, as well as increased pressure from the political sphere for tax transparency, investors are having to undertake widespread review and in many cases reform of their own structures in place.

“This pressure, along with other macro threats on the agenda such as the European elections taking place in 2017, means that investors are leaning towards a more defensive approach, seeking low volatility asset classes that provide a strong yield and, in many cases such as real estate, a refuge for capital preservation.”