A formula for fund returns?
16 Apr 2025
Martin Scott, CEO and founder of Core Fund Services reimagines Einstein’s E = mc² for fund performance, stating speed to market - red tape = better fund returns
Image: vitaly/stock.adobe.com
State of play
Over recent years, fundraising for closed-ended funds has been particularly tough. First there was the slowdown caused by the Covid-19 pandemic with many limited partners (LPs) hitting the pause button on new commitments amid logistical and operational challenges, coupled with the impact of the denominator effect as public markets went into freefall. While fundraising staged something of a recovery in the couple of years that followed, the rebound largely benefitted megafunds and brand name firms, with LPs becoming more selective as distributions slowed. The mantra in the industry last year seemed to be ‘survive to 25’ but resilience continues to be tested. Geopolitics and an uncertain macroeconomic outlook have only served to further complicate what was an already difficult landscape.
The next generation
Market sentiment is improving with existing managers returning to market, deal activity showing signs of picking up and a growing number of new managers are coming to market with fresh ideas and novel approaches. These are often led by next-generation teams with entrepreneurial ambition, a successful track record and deep networks. This is one of the most exciting – and underrated – aspects of alternative asset management: its innovative nature.
For these next-generation managers, the need for equally innovative and agile platforms and regulatory frameworks is crucial to their prospects of success, particularly since they may be operating cross-border. This can be summarised as: speed to market - red tape = better fund returns.
When establishing a fund, managers must navigate a complex array of considerations — from investor preferences and tax structuring to legal frameworks, access to service providers and, increasingly, regulatory efficiency. Managers need to know that slow-moving regulatory processes won’t be an issue and restrict their ability to respond quickly to market opportunities.
Not all jurisdictions are created equal in this regard. For example Guernsey, where Core is domiciled, offers asset managers fast track programmes that, in some circumstances, can facilitate fund regulation in one working day. Such speed to market is far more likely to generate better returns, which is good news for general partners (GP) and LP alike. As a result, we’re seeing choice of fund domicile becoming an increasingly important consideration and discussion point.
Riding regulation
One area where regulatory nuance is especially important is European investor access. The Alternative Investment Fund Managers Directive (AIFMD) provides a harmonised framework and marketing passporting across EU member states, but it also introduces significant compliance and cost burdens. For many managers this model may be more expensive and burdensome than they need.
A 2022 report by the European Court of Auditors found that 70 per cent of all assets under management in the EU were held by funds authorised or registered for distribution in just one member state, with just three per cent of alternative investment funds registered for distribution in three or more member states.
This indicates full AIFMD access may not be integral to the ability of asset managers to raise capital within most of the EU.
The National Private Placement Regime (NPPR) offers an alternative, enabling non-EU funds to market into individual European countries without requiring full AIFMD authorisation. Despite the lack of a passport, the NPPR has proven to be a reliable and efficient route to market and is considered lighter touch than the AIFMD.
This has driven the popularity of jurisdictions such as Guernsey, Jersey, and the Cayman Islands, all of which offer established frameworks for marketing into the EU via the NPPR. For example, Guernsey’s Private Investment Fund regime is designed to facilitate agile capital formation for up to 50 investors, making it especially attractive to venture capital and emerging managers.
Speed and agility does not need to come at the expense of investor protection with well-regarded domiciles increasingly defined by their ability to set effective corporate governance standards. Even in lighter-touch regimes, strong corporate governance frameworks, experienced boards, and proactive regulatory engagement can all help safeguard investor interests.
As managers — new and returning — look to maximise their performance, navigate liquidity pressures, and differentiate themselves in a highly competitive fundraising environment, the choice of fund domicile is no longer purely a back-office consideration. It can influence the ability to innovate, scale, seize opportunity, and attract LPs. Jurisdictions that can offer regulatory pragmatism, market access, expert supporting services and adaptable infrastructure are well-placed to thrive.
Over recent years, fundraising for closed-ended funds has been particularly tough. First there was the slowdown caused by the Covid-19 pandemic with many limited partners (LPs) hitting the pause button on new commitments amid logistical and operational challenges, coupled with the impact of the denominator effect as public markets went into freefall. While fundraising staged something of a recovery in the couple of years that followed, the rebound largely benefitted megafunds and brand name firms, with LPs becoming more selective as distributions slowed. The mantra in the industry last year seemed to be ‘survive to 25’ but resilience continues to be tested. Geopolitics and an uncertain macroeconomic outlook have only served to further complicate what was an already difficult landscape.
The next generation
Market sentiment is improving with existing managers returning to market, deal activity showing signs of picking up and a growing number of new managers are coming to market with fresh ideas and novel approaches. These are often led by next-generation teams with entrepreneurial ambition, a successful track record and deep networks. This is one of the most exciting – and underrated – aspects of alternative asset management: its innovative nature.
For these next-generation managers, the need for equally innovative and agile platforms and regulatory frameworks is crucial to their prospects of success, particularly since they may be operating cross-border. This can be summarised as: speed to market - red tape = better fund returns.
When establishing a fund, managers must navigate a complex array of considerations — from investor preferences and tax structuring to legal frameworks, access to service providers and, increasingly, regulatory efficiency. Managers need to know that slow-moving regulatory processes won’t be an issue and restrict their ability to respond quickly to market opportunities.
Not all jurisdictions are created equal in this regard. For example Guernsey, where Core is domiciled, offers asset managers fast track programmes that, in some circumstances, can facilitate fund regulation in one working day. Such speed to market is far more likely to generate better returns, which is good news for general partners (GP) and LP alike. As a result, we’re seeing choice of fund domicile becoming an increasingly important consideration and discussion point.
Riding regulation
One area where regulatory nuance is especially important is European investor access. The Alternative Investment Fund Managers Directive (AIFMD) provides a harmonised framework and marketing passporting across EU member states, but it also introduces significant compliance and cost burdens. For many managers this model may be more expensive and burdensome than they need.
A 2022 report by the European Court of Auditors found that 70 per cent of all assets under management in the EU were held by funds authorised or registered for distribution in just one member state, with just three per cent of alternative investment funds registered for distribution in three or more member states.
This indicates full AIFMD access may not be integral to the ability of asset managers to raise capital within most of the EU.
The National Private Placement Regime (NPPR) offers an alternative, enabling non-EU funds to market into individual European countries without requiring full AIFMD authorisation. Despite the lack of a passport, the NPPR has proven to be a reliable and efficient route to market and is considered lighter touch than the AIFMD.
This has driven the popularity of jurisdictions such as Guernsey, Jersey, and the Cayman Islands, all of which offer established frameworks for marketing into the EU via the NPPR. For example, Guernsey’s Private Investment Fund regime is designed to facilitate agile capital formation for up to 50 investors, making it especially attractive to venture capital and emerging managers.
Speed and agility does not need to come at the expense of investor protection with well-regarded domiciles increasingly defined by their ability to set effective corporate governance standards. Even in lighter-touch regimes, strong corporate governance frameworks, experienced boards, and proactive regulatory engagement can all help safeguard investor interests.
As managers — new and returning — look to maximise their performance, navigate liquidity pressures, and differentiate themselves in a highly competitive fundraising environment, the choice of fund domicile is no longer purely a back-office consideration. It can influence the ability to innovate, scale, seize opportunity, and attract LPs. Jurisdictions that can offer regulatory pragmatism, market access, expert supporting services and adaptable infrastructure are well-placed to thrive.
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