Investment funds are vehicles used to gather investor capital and collectively invest this capital in a portfolio of various financial securities. The country in which the fund is incorporated is the domicile country.
of almost 20 trillion euros. These funds primarily fall into two categories, Alternative Investment Funds (AIFs) and Undertakings for Collective Investments in Transferable Securities (UCITS). AIFs typically do not invest in traditional products such as stocks, bonds, or cash securities. AIFs use collective funds from certified investors to invest in securities such as private equity, commodities, and hedge funds, among other types of securities. UCITS are mutual funds that are structured under the European commission. UCITS invest in a range of securities such as stocks and bonds. Due to the regulation of UCITS, these mutual funds are registered in Europe and can be sold worldwide. When
or AIFs are positive, this is reflective of more investors buying into the fund than the level of investment being taken out.
Choosing a fund domicile
The fund domicile is typically where the administration and management of the fund takes place. There are several crucial factors firms should consider when choosing a country of domicile. Financial costs may vary, often a physical presence is required in the domical country this may result in relocation costs or costs to set up an
asset management company in Europe. Local
corporate tax rates in Europe also vary and can add additional expense. Market access is also an important topic. AIFs and UCITS domiciled within the European Union (EU) have free access to all EU investors. This is in contrast to the UK where it is possible, however, significantly more difficult to market across EU member countries. Legal transparency and local regulations are also a factor. While many European countries both within and outside of the EU have strong regulatory systems, it is still an important consideration to evaluate when choosing a fund domicile, because local laws and regulations can impact a funds operation. The
perceived corruption of European countries is a key factor to consider.
Fund performance
Luxembourg and Ireland are among the most popular EU member countries to be chosen as a fund domicile. Almost half of all
European UCITS and AIFs net assets are domiciled in Luxembourg and Ireland. However, both countries have experienced a recent decline in
growth rates of UCITS net assets. This is in contrast to countries such as Czechia, which experienced a positive growth rate. However, Czechia is currently home to some of the lowest levels of
investment fund assets under management in Europe. A positive growth rate typically is a good sign when evaluating a fund's performance. However, it may not always directly reflect the size of the fund as typically growth may remain constant in more developed environments.
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