Asset pooling

The European funds market is about half the size of its US equivalent, yet it has three times the number of funds thanks to the existence of multiple platforms and duplicated ranges across territories within the EU. Aside from being administratively burdensome for companies this is also unnecessarily costly and inefficient.

Delivering economies of scale through asset pooling

It is estimated that the pooling of fund assets could deliver the economies of scale present in the US and yield savings of as much as €5 billion per annum, as well as resulting in significant tax and VAT savings both for investors and fund managers.

In July 2008 the European Commission acted to facilitate the implementation of pooled fund structures by creating a framework for facilitating cross-border fund mergers and allowing fund assets to be pooled cross-border. This will enable the use of master/feeder arrangements, and mean that both retail and institutional investors can access the same tax efficient platforms, generating further economies of scale.

With the deepening trend towards aligning the tax treatment of overseas funds with those domiciled in the UK, one of the main reasons for maintaining separate UK platforms alongside overseas structures is set to be removed. Although, there continue to be administrative and distribution advantages (such as investor and intermediary recognition) which make domestic structures attractive as feeder vehicles for an offshore master fund.

What are the benefits of fund rationalisation and asset pooling?

There is a growing awareness of the savings, and the competitive advantage, to be achieved through the adoption of asset pooling techniques.

The benefits for fund managers by asset pooling include:

  • architectural alignment to open platform multi-manager investing
  • more efficient asset allocation process through order aggregation
  • achieve critical scale and thereby broaden investment access to securities lending and derivatives based investment strategies, trailer fees and other commission mechanisms
  • cost savings through economies of scale in the management, administration and custody of the investment portfolio
  • better risk control through adoption of a common governance model for the operational management and administration of the funds

The benefits for investors, particularly institutions include:

  • tax savings (including reduced rates of withholding tax)
  • no VAT on management charges, and no Stamp Taxes on dealings in fund units – they may even be able to recover VAT where the fund is marketed to non-UK investors

The Deloitte approach

Whilst the potential benefits of Asset Pooling are attractive, it is necessary to ensure that the investment process is not unduly hampered and the intended tax benefit secured. We are the foremost professional services firm for Asset Pooling and our experience includes:

  • Optimising the tax opportunity
    Through our leadership in this field, we are able to bring our extensive experience of negotiating tax transparency and practical knowledge of ruling processes, to secure tax rulings with the appropriate taxation authorities. We have assisted clients with VAT planning, stamp and transfer taxes, and taxation of securities lending and other investment transactions in the context of tax-transparent pooling platforms.

  • Investment versatility
    We assist clients in defining, selecting, and implementing tax-transparent operating platforms. The custody, fund accounting and transfer agency functions need to support broad investment strategies (including securities lending and derivatives functionality).