What is the Wind Behind the Sails to Go Abroad? - Empirical Evidence from the Mutual Fund Industry

This paper analyzes the domiciliation decision in the mutual fund market. The intensified competition among fund companies in the EU has provided incentives to relocate companies' activities and to domicile their investment funds in financial centers which offer the most favorable regulatory environment.

The empirical analysis suggests that the decision on where to domicile a UCITS fund is primarily driven by fund-specific legislation, conditions in the approval process, and the cluster of specialized experts. By contrast, traditional cost factors such as registration charges, fund company tax burden and labor costs are generally considered to be less important. A further central implication of the analysis is that fund companies sort their preferences on the domiciliation decision in a very similar manner and that managers’ assessments are more persistent the more relevant the determinants are. This finding also reinforces the results' significance. Further, this work stresses that despite virtually uniform regulation conditions for UCITS funds, differences in practice still exist between countries (e.g., relationship between actors in the fund company and authorization body). Luxembourg remains the winner in almost all considered determinants, whereas countries with a large domestic market size, such as France and Germany, lag behind. Hence, the common divergence of funds' production and distribution is still motivated by clear reasons.

Lang, Gunnar and Henry Schäfer (2013), What is the Wind Behind the Sails to Go Abroad? - Empirical Evidence from the Mutual Fund Industry, ZEW Discussion Paper No. 13-022, Mannheim.