A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

MAIN ACTORS AND STRUCTURES

The Swiss LP requires that the GP be a Swiss company limited by shares, while the LPs must be qualified investors, such as institutional investors, high net worth individuals, or individuals who have entered into an asset management agreement with a supervised financial intermediary. However, in practice, market participants are still reluctant to use Swiss LPs, and tend to rely on non-Swiss structures while appointing a Swiss investment manager. This can be explained by the fact that Swiss LPs were introduced only two years ago, that they do not receive tax ben- efits (although this disadvantage can be mitigated if it is properly structured and a ruling from the competent tax authority is obtained), and that they are regulated by the Swiss Financial Market Supervisory Authority (FINMA) (which can also be an advantage as domestic pension plans for instance are required to invest in regulated investment schemes).

As these issues are addressed, administration costs decline and transparency increases, it is expected that the Swiss LP will become a more attractive alternative to offshore LPs. 40

2.2.6

The United Kingdom

The United Kingdom offers to LPs and fund management companies one of the most fa- vourable environment for private equity and venture capital. Pension funds and insurance companies do not face any constraints when investing in the asset class, apart from those defined in the European Union directives. Moreover, the country provides an appropriate domestic fund structure, which functions as a model for several other national regimes, as well as tax incentives to stimulate investments in private equity and venture capital. Both the English limited partnership and the Scottish limited partnership are suitable fund structures for private equity and venture capital investments. The English limited partnership is tax transparent for the purpose of UK taxation on income and chargeable gains for domestic as well as non-domestic LPs. In the absence of a trad- ing activity, non-domestic LPs can avoid having a permanent establishment in the country. Furthermore, although management fees for managing a private equity and venture capital fund would in theory be subject to VAT, the fund management arrangements typically be structured so as to ensure that UK VAT does not have to be charged on the management fees. Finally, fund this structure is free from undue restrictions. Guernsey and Jersey have both positioned themselves as key centres for establishing off- shore funds, particularly in the real estate and private equity sectors over the last decade. Indeed, European Union directives on fiscal harmonisation, financial services and company law do not have direct effect in Channel Islands. Since a few years, Guernsey has been growing its reputation as a leading offshore private equity domicile in Europe. As displayed by figure 32, the net asset value of private equity funds in the island increased dramatically over the past 5 years by 14% during 2008 alone despite the adverse global market conditions that have seen amounts raised by private eq- uity funds across Europe fall by some 10% in 2008. The Channel Islands

2.2.7

42 Source: EVCA, “Benchmarking European tax and legal environment”, October 2008

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