For investors there is already a pressing need to consider offshore funds: many provide strong returns in areas currently "beyond the pale" of any fund domiciled in the UK and hence typically part of the
IMA universe.
Financial Express data suggests the
FSA offshore recognised funds universe is approaching 3,500 strong. In it there are numerous examples of non-UK domiciled funds doing well, but for which UK investors lack enthusiasm or awareness.
Consider these six funds, which all returned more than 200 per cent in their local currency in the past 12 months, as well as offered strong total return in sterling.
These are not necessarily esoteric
offshore beasts: there is a growing group of offshore funds that have the correct authorisation for distribution to the UK retail investor, and the minimum investment required is not necessarily of institutional levels.
Besides access to areas untapped by the UK domiciled fund universe currently – such as single country funds, like the
Fidelity Indonesia – there are performance reasons to look ex-UK.
Baker Steel Capital Managers and its managing partners Trevor Steel and David Baker run the Cayman Islands based
Baker Steel Genus Dynamic Gold fund. This long only fund requires a minimum investment of £100,000.
The one year total return rebased to sterling to 23 November 2009 on this fund was 250.53 per cent, according to
Financial Express data.
Compare that to the duo’s well known
UK domiciled OEIC CF Ruffer Baker Steel Gold, which returned 193.18 per cent over the period in the
IMA Specialist sector.
Putting aside the fact an investor can access the latter for 1/100th the initial amount invested, both funds are leveraging off the considerable long term expertise of these managers in the same asset class and the performance difference acts as an example of why investors should not dismiss the offshore choice – or alternatively should demand more from their UK-domiciled vehicles.
It should also be pointed out that the planned inclusion of offshore funds in IMA sectors may not bring total visibility.
Mark Martyrossian, founding partner of Tiburon Partners says: "We have been trying to get the IMA to include our Dublin based
Tiburon Taipan Fund among its sectorised funds for some time. Despite the fact we are FSA authorised, the fund is UCITS III compliant, has obtained distributor status and has a sterling share class, we have so far been unsuccessful."
He adds: "It is important to remember that when the IMA does start allowing offshore domiciled funds into its sectors from the New Year, there will still be those, such as Tiburon Taipan, which remain less visible, because they were unable to access the window of registration earlier this year because of their incorporation status, or because they do not see an immediate need to pay an IMA fee, especially since the IMA does not guarantee that this will facilitate being included among their sectors.”
Rod Aldridge, head of UK distribution for Barings, says the firm is keen to take advantage of the new rules and raise visibility of its offshore funds in the UK retail market. He points to the likes of
Baring Global Resources and says "we have felt for a while they are relevant to UK investors".
One issue facing the industry is the likelihood that the
IMA Specialist sector will see a large influx of additional constituents. Partly this is due to many offshore funds being specialist by nature, but also because it will take time for the IMA to develop new sectors in response to new supply.
Aldridge says the IMA "is aware of this" and it could be that initial new sectors develop such as 'Global Resources' or 'China' – the latter reflecting the prevalence of China funds offshore.
He adds: "What is interesting is how quickly the IMA introduces these new sectors".