A growing trend among family offices, along with major family wealth structures, is to establish Private Family Funds (PFFs) to create formalised investment vehicles. In this article Head of Wealth Structuring David Piesing looks at the advantages of PFF and why they are becoming increasingly popular.
In many respects PFF are not materially different from non-fund vehicles where family members and/or their respective personal holding entities co-invest, however formalising the arrangement can bring several advantages.
By far the biggest advantage is to bring more investment discipline to the investment arrangements, as the PFF will usually appoint one or more specialist fund managers (which may include the family office’s own investment arm) to manage portfolios for specific asset classes. The PFF can be set up as a Protected Cell Company, an Incorporated Cell Company, or a Segregated Portfolio Company, all of which achieve similar outcomes, to create a multi-asset class PFF structure, or they can just be simple standalone companies, unit trusts or limited partnerships.
In recent years, many international finance centres have introduced light-touch regulatory fund regimes, which are designed specifically for funds with low numbers of investors and where there will only be promotion to a small number of sophisticated investors. While all of these jurisdictions are competing with each other, there are subtle differences which may often lead to one jurisdiction being selected over the others. One such difference is in relation to which type of regulatory licence is actually required to administer these more lightly regulated funds. While some jurisdictions only permit licensees with a fund administration licence to administer any funds, there are other jurisdictions which permit trust licensees to administer certain categories of funds.
This type of convergence of fund and trust offerings is likely to become increasingly popular as wealthy cross-jurisdictional families streamline and consolidate their investment arrangements in tax-neutral jurisdictions, and of course the various family members may also require specific holding vehicles, whether those are trusts, foundations, companies or sophisticated insurance policies (and combinations thereof) to own their PFF interests.
PraxisIFM specialises in both trust and fund administration services and is licensed for these activities in several jurisdictions with attractive and flexible offerings for PFF. These include ADGM, BVsI, the Cayman Islands, Guernsey, Isle of Man, Jersey, Luxembourg and Malta. Our teams can work with clients and their advisers to provide solutions tailored to satisfy their needs and preferences.
The PraxisIFM Group does not offer tax advice and before considering any of the options discussed in this article appropriate tax advice should be sought from a qualified tax advisor. This article constitutes neither professional advice nor a binding offer by us to provide professional services. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence.