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Where Private Equity Firms Incorporate Funds

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jeans032

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Private equity managers don’t pick fund domiciles at random. Where a fund is incorporated shapes its investor appeal, its taxes, its regulatory burden, and even how fast it can get to first close. Over the past decade I’ve helped managers navigate these choices across the US, Europe, and Asia, and the same themes keep surfacing: tax neutrality, investor familiarity, marketing rules, and execution speed. Get those right and the rest of the build tends to fall into place.

Why domicile matters more than most managers expect

Fund domicile isn’t about postcards and palm trees. It’s about aligning the legal, tax, and regulatory framework with your investor base and your deal flow.

  • Investor comfort and access: Large LPs have jurisdictional preferences baked into their operations. US pensions expect Delaware. European insurers like Luxembourg or Ireland. Asia-based family offices are increasingly comfortable with Singapore and Hong Kong. Meeting your LPs where they are reduces friction at commitment time.
  • Tax neutrality and efficiency: The ideal PE fund doesn’t add tax drag at the fund level. It’s a pass-through where possible and a treaty-friendly investor where needed, with blockers and alternative investment vehicles (AIVs) used to handle specific tax exposures.
  • Regulatory posture and marketing: If you plan to fundraise in the EU, you’ll need an AIFMD strategy. If you target US ERISA capital, you’ll manage to the 25% plan assets threshold or operate as a VCOC/REOC. If you tap Asian LPs, local regimes and substance rules come into play.
  • Time-to-market and cost: Some jurisdictions let you get from term sheet to first close in weeks; others take months and carry heavier ongoing compliance. Cost differentials are real—often six figures at formation and annually thereafter.

With that framing, let’s look at the go-to domiciles and how managers actually use them.

The big four domiciles

Delaware, USA

If you’re raising predominantly from North American LPs, Delaware will likely be home base.

  • Typical structures: Delaware limited partnership (LP) with a Delaware or other US general partner (GP) LLC. Co-invest vehicles and AIVs often mirror the main fund.
  • Why managers pick it:
  • The gold standard for US LPs: familiar limited partnership law and predictable case law.
  • Pass-through treatment: US tax transparency without fund-level tax.
  • Flexibility: Broad freedom to contract in the LP agreement, which lets you tailor waterfalls, clawbacks, and governance.
  • When it shines:
  • US mid-market buyout, growth equity, venture, and credit funds aimed at US pensions, endowments, and family offices.
  • Continuation vehicles for US-dominant LP groups.
  • Co-investment platforms with tight execution timelines.
  • Watch-outs:
  • Non-US investors facing US effectively connected income (ECI) often need blocker corporations or parallel offshore structures to avoid US filing obligations.
  • ERISA 25% test: if benefit plan investors exceed 25% of any class of equity, you either rely on VCOC/REOC exemptions or accept plan asset status. Most PE managers structure to avoid plan assets.
  • Ballpark costs and timelines:
  • Formation legal: $75k–$200k+ depending on complexity and side letters.
  • Ongoing: $100k–$300k annually for audit, tax, admin, and state fees.
  • Timeline: 3–8 weeks to first close if docs are ready and diligence is tight.

Cayman Islands

Cayman remains the leading “offshore” domicile for private funds with global or US-centric strategies that include non-US and tax-exempt investors.

  • Typical structures: Cayman exempted limited partnership (ELP) for a parallel or feeder fund; Cayman exempted company as a blocker; Cayman master fund for certain master-feeder builds. GP often a Cayman ELP or exempted company.
  • Why managers pick it:
  • Tax neutrality: No Cayman income, capital gains, or withholding taxes.
  • Global familiarity: North American and Asian LPs are comfortable with Cayman LP docs and governance.
  • Efficient setup: Relatively quick formation and, with experienced counsel, predictable regulator interactions.
  • Regulatory notes:
  • Private funds must register with the Cayman Islands Monetary Authority (CIMA) under the Private Funds Act and comply with annual audit, valuation, safekeeping/verification of assets, and certain governance standards.
  • Economic substance rules exist, but investment funds are generally out of scope; fund managers and certain SPVs may be in scope.
  • When it shines:
  • Offshore parallel funds alongside a Delaware fund to accommodate non-US and US tax-exempt LPs, minimizing ECI/UBTI leakage.
  • Asia-facing managers who want a neutral, non-treaty domicile familiar to global LPs.
  • Watch-outs:
  • Treaty access: Cayman is not a treaty jurisdiction; you’ll rely on tax blockers/AIVs in treaty jurisdictions for specific deals.
  • Substance and optics: Some European LPs prefer EU domiciles for policy and reporting reasons.
  • Ballpark costs and timelines:
  • Formation legal + regulatory: $100k–$250k+ depending on feeders/masters and registration.
  • Ongoing: $125k–$300k+ annually (audit, admin, registered office, CIMA fees).
  • Timeline: 4–8 weeks to first close after docs are set.

Luxembourg

Luxembourg is the dominant EU private markets domicile for managers seeking AIFMD alignment, EU marketing, and treaty access.

  • Typical structures:
  • SCSp (special limited partnership), often as a RAIF (Reserved Alternative Investment Fund) for speed, managed by an authorized AIFM (in Luxembourg or another EU state).
  • SCS (ordinary LP), SCA (partnership limited by shares), and corporate forms (SICAV/SICAF) used for specific strategies.
  • AIFM can be third-party to accelerate timing and outsource regulatory obligations.
  • Why managers pick it:
  • AIFMD passport access through an EU AIFM.
  • Strong service ecosystem: administrators, depositaries, auditors, and counsel with deep PE experience.
  • Treaty network: Luxembourg entities (e.g., Sàrls as holding companies) can secure favorable withholding outcomes when properly substantiated.
  • When it shines:
  • Pan-European strategies, infrastructure, private debt, and real assets sold to European institutions.
  • Funds contemplating SFDR Article 8/9 positioning or with meaningful EU retail insurance/channel exposure via feeders.
  • Watch-outs:
  • Cost and complexity: Depositary appointment, AIFM oversight, and SFDR disclosures add time and expense.
  • Substance: Real mind-and-management in Lux is expected for treaty access; that means local directors and governance for holding companies, not just the fund.
  • Ballpark costs and timelines:
  • Formation: €300k–€600k+ for fund, AIFM onboarding, depositary, and docs; more if you build a full in-house ManCo.
  • Ongoing: €250k–€600k+ annually depending on complexity and number of sub-funds/vehicles.
  • Timeline: 8–16 weeks to first close for a RAIF; longer if licensing a new AIFM.

Ireland

Ireland has emerged as Luxembourg’s peer, especially for credit, infrastructure, and strategies marketed to EU insurers and pensions.

  • Typical structures:
  • ILP (Irish Limited Partnership) as an AIF, often QIAIF (Qualified Investor AIF) for fast-track authorization with an Irish AIFM and depositary.
  • ICAV (Investment Company with Variable Capital) is common for open-ended credit but also used for certain PE and real assets with closed-ended features.
  • Why managers pick it:
  • Regulatory efficiency: QIAIFs can be approved quickly once the AIFM and service providers are in place.
  • Strong ecosystem: Dublin administrators and depositaries handle complex private markets.
  • English-speaking common law influences, helpful for drafting and investor comprehension.
  • When it shines:
  • Private credit platforms with multiple sleeves (open/closed), infra equity, and EU-focused buyout where investor familiarity is high.
  • Managers seeking SFDR alignment and AIFMD passport with slightly different operational flavor than Luxembourg.
  • Watch-outs:
  • You’ll need an authorized AIFM and a depositary; substance and governance expectations mirror the EU norm.
  • Treaty access and tax outcomes often hinge on Irish holding company structures and real substance for portfolio-level tax efficiency.
  • Ballpark costs and timelines:
  • Formation: €250k–€550k+.
  • Ongoing: €200k–€500k+ annually.
  • Timeline: 10–14 weeks to first close for a QIAIF if service providers and docs are ready.

Other leading options worth serious consideration

United Kingdom

  • Structures: English limited partnership with a UK GP; UK LLPs for management entities; new LTAF (Long-Term Asset Fund) for semi-professional/retail-like channels.
  • Use cases:
  • UK-focused strategies or managers anchored to London looking for onshore branding and FCA oversight.
  • DC pension access via LTAF; still early days for private equity but growing for private credit and infrastructure.
  • Pros/cons:
  • Strong legal system and LP familiarity domestically.
  • Less flexible than Delaware for global LP bases; EU marketing requires AIFMD third-country solutions.

Jersey and Guernsey

  • Structures: Jersey Private Fund (JPF) with a Jersey LP; Guernsey Private Investment Fund (PIF) or Qualifying Investor Fund. Light-touch regimes with professional/qualified investor limits.
  • Why they work:
  • Fast authorization (often days once documentation is complete).
  • Efficient NPPR marketing into select EU countries.
  • Strong governance culture and experienced administrators.
  • Ideal for:
  • Mid-market managers targeting European professional investors without needing the full AIFMD passport.
  • Continuation funds and co-invest vehicles where speed matters.
  • Considerations:
  • Not EU domiciles—passporting isn’t available; marketing relies on national private placement regimes.
  • Some LPs have internal policies preferring EU domiciles for core funds.

Singapore

  • Structures: Variable Capital Company (VCC) as an umbrella with sub-funds; traditional limited partnership under Singapore law; fund management via CMS license or registered fund management company (RFMC) regime.
  • Why it’s rising fast:
  • Robust legal system, political stability, and supportive regulators.
  • Regional hub for Asia-focused LPs and co-investors.
  • VCC provides operational efficiency across sub-funds and strategies; tax incentives available for qualifying funds.
  • Use cases:
  • Asia growth and venture, Southeast Asia buyout, pan-Asia credit.
  • Managers building long-term presence in the region with real substance and talent.
  • Watch-outs:
  • Still building global LP familiarity compared with Cayman and Luxembourg, though the gap is narrowing.
  • Licensing and substance requirements need early planning.

Hong Kong

  • Structures: Limited Partnership Fund (LPF) regime; OFC (Open-ended Fund Company) for liquid strategies; carried interest tax concession in place.
  • When it fits:
  • Greater China strategies and managers with Hong Kong-based teams.
  • LPs who prefer onshore Hong Kong structures given local tax incentives.
  • Considerations:
  • Geopolitical perception and LP policy constraints can influence allocations.
  • Treaty access situational; deal-level holding structures often required.

Mauritius

  • Structures: Limited partnerships; GBL (Global Business License) entities; widely used for India- and Africa-focused strategies historically.
  • Pros/cons:
  • Treaty network useful in specific corridors (though many treaties have tightened over time).
  • LP comfort varies; more common for emerging markets specialists than mainstream global buyout.

Netherlands

  • Structures: CV (limited partnership), cooperative entities for holdings.
  • Where it helps:
  • Holding and financing platforms inside Europe with experienced tax and legal support.
  • Treaty network and robust courts.
  • Headwinds:
  • Anti-abuse rules and substance expectations have increased; many managers now default to Luxembourg or Ireland for fund vehicles, keeping Dutch entities for holdings where they still add value.

How private equity structures are actually put together

Parallel funds and master-feeder choices

  • Parallel funds: The most common PE build for global managers is a US onshore LP (Delaware) alongside an offshore LP (Cayman) and, if needed, an EU LP (Luxembourg or Irish). Each fund makes investments side-by-side, either directly or through shared AIVs.
  • Master-feeder: More typical for hedge funds, but used in private credit and some PE secondaries. An offshore master with onshore and offshore feeders can centralize assets. PE managers prefer parallel structures to fine-tune tax outcomes for each investor cohort.

AIVs, blockers, and co-invest SPVs

  • AIVs: Used to route specific investors around tax or regulatory pitfalls for a given deal (e.g., a Luxembourg AIV to unlock treaty benefits for a European acquisition).
  • Blockers:
  • US C-corp blockers for non-US and US tax-exempt investors to avoid ECI/UBTI on US operating income or real estate.
  • Treaty blockers (Lux Sàrl, Irish HoldCo, Dutch BV) for cross-border dividends and interest, subject to anti-abuse and substance rules.
  • Co-invest vehicles: Often Delaware or Cayman SPVs for speed and familiarity. Lux/Ireland used when deal jurisdiction or LP policies favor EU structures.

Continuation funds and GP-led secondaries

  • Many sponsors spin a continuation vehicle in the same jurisdiction as the selling fund for efficiency and LP alignment.
  • If incoming buyers are European and the assets are EU-heavy, Luxembourg SCSp RAIFs are common.

Tax themes that drive domicile choices

  • Tax neutrality: A fund that’s fiscally transparent (LPs taxed, fund not) avoids fund-level leakage. Delaware and Cayman ELPs achieve this; Lux SCSp/RAIF and Irish ILP achieve the equivalent from an investor perspective.
  • Treaty access: Some domiciles aren’t treaty jurisdictions (Cayman), so vehicles above the portfolio company (Lux, Ireland, Netherlands) handle withholding. Substance—real decision-making, local directors, documented business purpose—is the gating factor post-BEPS.
  • US ECI/UBTI management:
  • Non-US investors dislike US filing obligations and tax on ECI.
  • US tax-exempt LPs avoid UBTI from operating businesses and leveraged income via blockers or deal structuring.
  • Parallel offshore funds or blockers are the norm for US-heavy portfolios.
  • ERISA and plan assets:
  • Stay under the 25% test at each entity/class level or qualify as a VCOC/REOC with management rights and operating plan oversight.
  • Domicile doesn’t fix ERISA issues, but Delaware/Cayman documents are designed to manage them cleanly.
  • Pillar Two and minimum tax:
  • Investment funds are generally out of scope, but portfolio companies and blockers can be impacted. Expect heightened attention to substance and hybrid mismatches, especially in EU holding platforms.

Regulatory and marketing considerations

  • AIFMD:
  • If EU fundraising is core, you’ll likely base the fund in Luxembourg or Ireland and appoint an EU AIFM for passporting.
  • Non-EU managers can rely on national private placement regimes into certain EU countries, often via Jersey/Guernsey, but coverage and rules vary.
  • SFDR and ESG:
  • EU-domiciled funds managed by EU AIFMs must navigate SFDR disclosures. Even non-EU managers marketing into the EU face entity- and product-level requirements when using NPPRs.
  • Many private markets funds position under Article 6 (no sustainability promotion), though Article 8/9 strategies are rising in infra and impact.
  • Cayman Private Funds Act:
  • Registration, annual audit, valuation policy, and safekeeping/verification are standard.
  • Operational playbooks now embed these requirements into admin and governance.
  • AML/KYC and tax reporting:
  • FATCA and CRS reporting are universal realities; domiciles differ in process, not obligation.
  • Expect investor-level data collection at subscription and periodic reporting across all mainstream jurisdictions.

A practical decision process for choosing a domicile

Here’s a step-by-step framework I use with managers:

  • Map your investor base by cohort
  • Domestic vs international, tax-exempt vs taxable, EU vs non-EU, sovereign/ERISA-heavy vs not.
  • A 70% US / 30% non-US split with several EU pensions points you toward Delaware + Cayman, possibly with a Lux parallel or feeder.
  • Define your marketing footprint for the next 24–36 months
  • If you plan to systematically target EU institutions, build an AIFMD path now—Lux or Ireland with an EU AIFM.
  • If EU is opportunistic and limited, consider Jersey/Guernsey with NPPR and keep the main fund Delaware/Cayman.
  • Model tax for your likely deal geographies
  • Where are the portfolio companies domiciled? What are the expected exit routes?
  • Run withholding outcomes (dividends, interest, gains) with and without holding platforms in Luxembourg/Ireland/Netherlands. Add realistic substance assumptions.
  • Decide parallel vs feeder architecture
  • Parallel funds give cleaner tax outcomes for each investor group; feeders can simplify operations in certain credit strategies.
  • Factor in admin complexity, side-letter proliferation, and co-invest logistics.
  • Align regulatory obligations with your operating model
  • Can you leverage a third-party AIFM and depositary (EU) to accelerate, or do you prefer in-house control?
  • In Cayman, decide on valuation and audit providers early; draft governance calendars to meet CIMA requirements.
  • Budget realistically
  • US + Cayman parallel: $250k–$500k+ to set up with AIVs/blockers and $250k–$600k+ annually depending on volume of SPVs.
  • EU (Lux/Ireland): €300k–€600k+ to launch; €250k–€600k+ annually. Add holding company costs.
  • Plan for substance and governance
  • Identify independent directors, local board calendars, and decision matrices for EU holding platforms.
  • Avoid rubber-stamp boards; contemporaneous minutes and deal files are a must for treaty positions.
  • Pressure-test timelines
  • Draft docs while service providers open accounts and run AML/KYC.
  • Build a reverse Gantt chart to first close: legal docs (3–6 weeks), domicile registrations (1–4 weeks), bank/admin onboarding (2–6 weeks), regulator filings (where applicable).

Common mistakes (and how to dodge them)

  • Chasing the cheapest setup
  • The extra €100k you “save” by avoiding an EU AIFM can cost you five institutional tickets you can’t solicit. Optimize for fundraising, not just formation.
  • Overlooking investor tax needs
  • If you only build a Delaware fund and then court non-US LPs, you’ll be scrambling to bolt on blockers. Design the offshore leg from day one.
  • Misreading NPPR flexibility
  • Some EU countries are friendly, others not. Jersey/Guernsey NPPR strategies work best with targeted country lists, not a pan-EU marketing plan.
  • Underestimating substance
  • Post-BEPS, letterbox platforms invite challenge. Budget for real local governance where you rely on treaties.
  • Mixing structures that confuse LP operations
  • If your LP base is split 60/40 US/EU, keep document sets parallel and reporting formats consistent. Administrators can help map capital calls, FX, and performance reporting so investors don’t feel like second-class citizens.
  • Leaving ESG/SFDR decisions to the end
  • If you’re anywhere near Article 8/9, your disclosures, portfolio data collection, and side letters need to be wired in early.

Mini case studies

  • US mid-market buyout with a handful of EU pensions
  • Build: Delaware main fund for US LPs; Cayman parallel for non-US and US tax-exempts; Luxembourg AIVs used deal-by-deal for EU assets to improve withholding outcomes.
  • Why it worked: Met US LP expectations, removed ECI/UBTI friction, and used Lux only where treaty benefits justified the cost.
  • Pan-European infrastructure equity fund
  • Build: Luxembourg SCSp RAIF with a third-party Lux AIFM and depositary; Luxembourg holding companies with independent directors.
  • Why it worked: AIFMD passport enabled broad EU marketing, SFDR Article 8 positioning was manageable, and treaty access reduced cash drag on distributions.
  • Asia growth equity platform scaling from seed to Fund II
  • Build: Singapore VCC as the flagship with sub-funds for early and late-stage sleeves; Cayman parallel for legacy LPs; Hong Kong LPF co-invest SPVs for Greater China deals.
  • Why it worked: Regional credibility and license alignment in Singapore, flexibility for cross-border investors, and on-the-ground execution for China-adjacent deals.

Trends to watch

  • The rise of Singapore VCC and Hong Kong LPF
  • Asia-based LPs are increasingly happy to commit onshore in the region. Expect more parallel Singapore/Cayman or Singapore/Lux builds for global managers.
  • EU retailization and semi-liquid private markets
  • ELTIF 2.0 in the EU and the UK’s LTAF are opening channels to wealth/retail-like capital through advised platforms. That pushes managers toward EU domiciles with robust liquidity, valuation, and disclosure frameworks.
  • GP-led secondaries normalization
  • Continuation funds are now mainstream. Domicile tends to follow the original investor base: Delaware/Cayman for US-heavy funds, Luxembourg/Ireland where EU buyers dominate.
  • ESG as a gating item
  • SFDR scrutiny is intensifying. Even Article 6 funds are fielding deeper diligence questions. Managers without a credible data plan for portfolio companies are at a disadvantage in EU fundraising.
  • Substance 2.0
  • Tax authorities are sharpening expectations for decision-making records and local director expertise. Expect board packs, valuation memos, and financing decisions to be prepared and approved in-domicile when treaty benefits are claimed.

Quick reference: who tends to incorporate where

  • Mostly US LPs, limited EU marketing:
  • Delaware LP main fund; Cayman parallel for non-US/US tax-exempt; US C-corp blockers for ECI/UBTI; occasional Luxembourg AIVs.
  • Significant EU institutional marketing:
  • Luxembourg SCSp RAIF or Irish ILP/ICAV with EU AIFM and depositary; treaty-friendly holdings; NPPR or affiliates for non-EU legs.
  • Asia-first investor base:
  • Singapore VCC or Hong Kong LPF as flagship; Cayman or Delaware parallel as needed; local licenses and substance built in.
  • Rapid, targeted EU access without full AIFMD:
  • Jersey Private Fund or Guernsey PIF, marketed under NPPR to selected countries; parallel Delaware/Cayman core.
  • Emerging markets focus with India/Africa nexus:
  • Mix of Mauritius, Luxembourg/Ireland, and onshore vehicles depending on treaties and investor preferences; careful with evolving anti-abuse rules.

Execution tips from the trenches

  • Pick administrators and counsel who regularly work together across your chosen domiciles; integration beats best-in-class silos that don’t talk.
  • Build a central, investor-friendly data room that answers domicile-specific diligence: governance calendars, AIFM/depositary frameworks, valuation policies, AML/KYC controls, and sample FATCA/CRS forms.
  • Lock your waterfall mechanics and clawback language early—with Delaware/Cayman/Lux/Ireland variants pre-drafted. Rewriting waterfalls late is where launches go to die.
  • Standardize side letter templates by investor cohort (US public pensions, EU insurers under Solvency II, sovereigns) to avoid bespoke chaos across domiciles.
  • Run a red team on tax assumptions for two emblematic deals in each target region. If the pro forma math looks bad without an AIV, bake it into the plan rather than rely on ad hoc heroics.

A closing perspective

The right domicile choice is less about fashion and more about fit. Most global PE platforms end up with a small toolkit—Delaware, Cayman, Luxembourg, and Ireland—plus regional options like Singapore, Jersey, or Hong Kong when strategy and investors demand it. Start with your LP map, layer on your marketing plan, pressure-test tax at the deal level, and then set a timeline and budget that reflect the real regulatory work involved. Do that, and the domicile becomes an enabler, not a constraint, for the fund you want to run and the investors you want to serve.

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