Fund management and the international pensions market are fuelling the financial services industry in the Isle of Man enhancing their product offerings with innovative launches
Despite being a fairly mature finance centre, the Isle of Man continues to strive to provide a framework for production innovation. The range of financial services products available from the Isle of Man is constantly expanding. However, the expansion is not coming from the quarters that most would expect like the traditionally strong banking and international life industries. It is the two relatively new industries to the island of fund management and international pensions that are leading the way in new product launches and innovation; that said, banks and international life companies are not resting on their laurels, with many seeking to enhance current offerings.
International Pension Schemes
Considering these industry sectors from a product lifecycle perspective, the international pension schemes sector is the baby, with many growing pains ahead. However the fundamentals are in place; The Retirement Benefit International Regulations came into effect in January 2002. With an increasing number of employers operating on a multi-country basis, the need for a fully international pension scheme is growing. However, it is difficult for any one single scheme to meet the fiscal requirements of each revenue service around the globe. With this in mind the Isle of Man Life and Pensions Authority has worked over recent years researching this market and the culmination was a Bill which introduced legislation enabling international pension schemes to be operated and established on the Isle of Man. A number of organisations have grasped the legislation and are beginning to develop bespoke products for internationally operating employers. The island is well placed to grow this business as the regulations give the employee/scheme member good protection while providing a regime which gives employers flexibility in design and construction. The legislation focuses on good governance.
During the 1990s, the Isle of Man government passed numerous pieces of legislation that has provided the infrastructure for a new range and type of collective investment schemes which could be offered from the Island. These schemes are principally aimed at experienced investors, high net worth individuals and institutions.
From small beginnings - professional investor funds were introduced in 1995 to compliment the existing authorised scheme legislation - the sector has grown and is now in a growth phase. The island's industry is attracting a myriad of international managers such as Close, Merrill Lynch, HSBC and specialist groups, such as Laxey Partners, Nedcor International, RAB Capital, to name but a few.
The majority of these schemes and the nature of their funds are, by definition, unregulated schemes (they include international investment schemes, experienced investment funds and professional investor funds). However, their offering memoranda must comply with various regulatory requirements and they must be administered by licensed fund administrators operating from the island. Essentially the administrator's role is not only to ensure the proper management and administration of the scheme but, in some respects, to act as the eyes and ears of the regulator should anything be amiss. These structures are incredibly flexible from an investment perspective and enable strategies to be developed which hold non-traditional assets.
The island also 'hosts' other schemes which are authorised and regulated by the island's authorities and these broadly mirror UK FSA regulations, however, this sector is not experiencing the growth of the experienced professional schemes.
Many of these schemes, although investing and using alternative techniques and assets, such as property, commodities and venture capital, will often seek listings on either Dublin or Guernsey stock exchanges to improve their marketability. More recently some specialist vehicles have also gone to AIM. The number of schemes operating from the island has increased tremendously during the last 24 months and the indications are that this will continue. Recent launches include film finance structures, traded US life settlements and UK property in the form of public houses provide a flavour of the diversity.
Increasingly, the charging structures associated with these parts are moving away from the traditional bid/offer spread or up-front initial charge associated with unit trusts and other collective schemes. Many of the managers who operate these schemes, due to the less liquid asset types being utilised, need to encourage investors to recognise that the investment is of a medium-term nature and not something that should be traded on a month-by-month basis. Therefore many of the newer funds operate charging structures with exit penalties rather than up-front charges. Additionally many of these new structures have incorporated performance fees to incentivise the managers to deliver promised returns rather than relying on simply performing in line with the rest of the market. These features combine to help differentiate many of the island's products from traditional structures operating in the UK.
The International Life Industry
The international life industry on the Isle of Man is, in market life cycle terms, a mature industry which has in recent years consolidated its position, rather than necessarily seeking continued growth. Many of the companies have refined their propositions to meet the needs of local laws in different jurisdictions and most of the players operate a far more concentrated business strategy than they may have done in the past.
In consolidating and focusing their offerings, many have strived to enhance the quality of service and the infrastructure which supports the many different investment and savings products which are offered by the various players. Investment wrappers are the principle focus for these businesses and most are now matched with online services available to advisers and clients for dealing valuation and therefore the innovation has not been of a radical nature, but improving the way that their products operate.
The island's banking sector is well established and contains most of the UK's high street names. The products on offer provide all the usual current and deposit accounts one would expect. One or two banks are slowly developing more rounded all-encompassing products in line with wrap accounts. However, the primary area of innovation for this industry is through structured and guaranteed accounts which are typically fixed term with a link to a non-banking index.
Looking ahead the life and banking sectors are likely to continue to mature and consolidate. And while they may strive to innovate most recent legislation - both UK and cross border - has led to defensive stances being adopted. For pensions the future is in the small industries own hands, while the fund sector needs to ensure continued quality to compete in this highly competitive market sector.
The range of financial services products available from the Isle of Man is constantly expanding.
Looking ahead the life and banking sectors are likely to continue to mature and consolidate.
The fund sector needs to ensure continued quality to compete.
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