UBS, Switzerland's No. 1 bank, will withdraw one of its hedge funds from the balmy beaches of the Caribbean, moving it closer onshore, to the Republic of Ireland. An example that may yet be copied by others.

 Tax havens such as the UK's Cayman and Virgin Islands for decades were favored places for hedge funds. The tide has turned. Asset managers are removing their funds to integrate them into the regulated structures of Europe.

Liechtenstein's LGT, the prince's own bank, at the end of 2014 pulled 9 billion francs out of the caribbean and moved it back home, as finews.ch reported.

Regulatory Requirements

Now Switzerland's biggest institute is following suit, taking 565 million francs of a hedge fund away from the Caymans and moving them to Ireland, the «Financial Times» reported (subscribers only).

UBS is reacting to an increasing demand for funds that fulfil regulatory requirements, the story continued.

The Swiss bank chose Ireland as the new base for the hedge fund because of the Irish Collective Asset-Management Vehicles Act (ICAV), which has been in place since February.

More to Come

ICAV is giving banks a hitherto unavailable freedom of manoeuvre, Bill Ferri, head of hedgefund solutions at UBS, told the «Financial Times». Funds can be more easily promoted within Europe from Ireland than from the Caymans, he added.

More than 60 funds have so far been founded in accordance with ICAV, the report said. The UBS fund however is a first, because it is the first already established fund that was moved to within the ICAV structure. This is only the beginning, said Pat Lardner, CEO of the Irish Funds Industry Association. He expects hundreds of similar transactions in the coming six months.

The skies above the Cayman Islands as a host for alternative funds seem overcast. Whether the island group will receive the pan-European licence for the distribution of alternative funds is uncertain, according to the «Financial Times». Unlike Switzerland, which received the all clear from the European authorities recently, as finews.ch reported.

Not Amused

The Cayman Islands are little pleased by the tightening of the regulatory demands in Europe, the «Financial Times» reported. Anthony Travers, head of the Cayman Islands Stock Exchange claimed the European Securities and Markets Authority (ESMA) was building walls around fortress Europe with all its regulations.

Travers' concern about a flight of fund associations from the Caymans is understandable. A majority of institutional investors believes that the laws for the distribution of alternative funds is favoring funds with headquarters within the European Union.