International distribution of mutual funds legal and compliance issues: historical considerations and practical pointers

Purpose – The purpose of this paper is to provide an introduction to the distribution of mutual funds around the world, including a background on the lack of sales of US funds offshore and initial practical legal and compliance considerations regarding fund structure, multi‐jurisdictional compliance, and strategic approaches. Design/methodology/approach – From the perspective of a legal practitioner with hands‐on experience in this area, the paper analyzes possible legal and compliance reasons why US‐registered funds have not benefited from recent developments in the international distribution of mutual funds and do not yet enjoy widespread investment flows from retail foreign investors. The paper discusses some of the practical issues around offshore‐domiciled fund structural considerations, then outlines a few critical considerations asset management companies that their legal counsel and compliance personnel should engage in prior to launching and selling offshore funds to international investors. Findings – The paper reveals that strong tax considerations appear to be a major reason why US funds have not been successful offshore, effective offshore options have developed as alternatives, and serious compliance and legal traps for the unwary remain in this complex multi‐jurisdictional area. Research limitations/implications – A synthesized multi‐jurisdictional review reveals an inconsistency among countries due to the varying stages in regulatory maturity. This means there may be further opportunity in sharing and making more consistent such regulatory regimes and optimizing capital flows and investment choices among otherwise likely similar emerging sets of investor classes. Practical implications – Strong consideration should be given to making US funds more competitive offshore via changes in the tax code. Continuing caution should be practiced as fund managers new to this area find it necessary to compete internationally for assets. Originality/value – This paper sets forth a summary compendium of multijurisdictional legal and compliance knowledge heretofore contained in multiple practice areas with limited availability of focused resources to business decision makers.