- UK private equity firms have domiciled about half of new funds offshore in the past four years, up from roughly a quarter in 2010-2015, with Luxembourg taking about a third of offshore vehicles.
- Post-Brexit investor demand for EU market access and lower-cost, lighter-touch regulation (notably in Guernsey for smaller funds) is driving the shift.
- Regulators and campaigners warn offshore structures can reduce beneficial-ownership transparency and complicate oversight of governance and valuations.
- The UK faces a trade-off between keeping private capital competitive and tightening disclosure, investor protection, and valuation standards.
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The Financial Times reports new research by the University of Glasgow showing that over the past four years, UK private equity (PE) firms have significantly increased the share of their funds established in offshore jurisdictions to approximately 50%, up from about 25% in the period 2010-2015. Around one-third of the offshore-registered funds are based in Luxembourg, with Guernsey noted for its appeal to smaller funds due to lower regulatory and cost burdens.
This structural shift is being driven by investor demand—especially from those wanting an EU footprint or legal and regulatory stability—and is also influenced by post-Brexit regulatory divergence. Firms are establishing funds in jurisdictions seen as offering easier market access to EU investors, more favourable legal treaties, or lighter compliance overheads.
However, this trend has spurred concerns across three major fronts: transparency of ownership and investor identity, robustness of valuation practices, and systemic financial stability. Offshore jurisdictions often lack strong legal requirements for disclosure of beneficial owners and may have limited registers that are difficult to access publicly. This opacity complicates regulatory oversight, inhibits best practice in governance, and heightens reputation risks.
The UK Financial Conduct Authority (FCA) has released a review of valuation practices in private markets, identifying strengths (documentation, third-party advisers, investor reporting) and weaknesses (conflicts of interest, lack of independence in valuation committees, lack of triggers for ad hoc valuations). These findings are especially relevant when funds are structured offshore, as cross-jurisdictional legal regimes complicate governance oversight.
Strategically, UK managers and policymakers need to balance: (a) the competitiveness and flexibility that offshore structures provide; (b) the increasing political and regulatory demand—both domestically and internationally—for transparency, anti-money laundering controls, and tighter governance of private funds; and (c) the risks of reputational damage, regulatory sanctions, or capital flight if perceived standards remain low. Open questions involve where to draw lines on disclosure, how to enforce rules across jurisdictions, and how potential reforms (e.g. legal, tax, regulatory) could impact fund domiciliation choices.
Supporting Notes
- “British groups set up half of their funds abroad over the past four years, up from around a quarter between 2010-2015.”
- “About a third of these are based in Luxembourg”; Guernsey is attractive especially for smaller funds due to lower costs.
- Investor demand—particularly from retail investors—has been a driver for funds to be based in the EU for legal or regulatory reach.
- Transparency concerns arise because “offshore regions often require less stringent disclosure about the identity of investors behind funds or have registries that are harder to access.”
- FCA’s review covering ~£1 trillion in UK private markets found gaps in governance: insufficient identification of conflicts of interest; lack of functional independence of valuation committees; inconsistent valuation methodologies; and absence of ad hoc valuation triggers.
- Beneficial ownership registers in many UK Overseas Territories are either inaccessible, partial, or delayed—Transparency International UK found key jurisdictions scored poorly on accessibility; few with public registers; BVI, Bermuda, Cayman among jurisdictions failing to deliver on earlier transparency commitments.