This article is an excerpt from GTDT Fund Management 2022. Click here for the full guide.
I would like to thank the contributors of this 2022 edition of Lexology Getting the Business Through Funds Management. Colleagues from Morgan Lewis and other experts from around the world provided insightful insight into key legal considerations for the fund management industry and bravely gave their predictions for the year ahead. They made being a guest editor a pleasure.
The past 12 months have continued to provide era-defining global events. The pandemic is still with us, even though it seems that we have begun to glimpse a world that is facing covid-19. The long-term impact on society and, in this context, financial services and investment is a fascinating study, but a difficult environment for regulators and fund managers to navigate. The immediate shift in investment focus towards healthcare, biotech and wellness is welcome and we’ll see if it holds up. Perhaps more importantly, the pandemic has highlighted the benefits of long-term strategic investments. Will investors persevere through environmental, social and governance (ESG) discussions and channel investments into attempts to address the impact of climate change in the years to come?
Last year, we highlighted a regulatory theme stemming from global political tensions. We had mentioned China and the United States, however, there are significant current conflicts, including Russia’s invasion of Ukraine, the ongoing civil war in Ethiopia, Libya and Syria and the withdrawal from Afghanistan. Governments have adopted foreign ownership review and restriction regimes and used sanctions regimes to inhibit the military capabilities of certain power structures. Fund managers navigate competing and sometimes conflicting requirements for raising capital, managing their investment activities, investing in assets, and understanding the impact on the business models of those assets. Sanctions regimes and the increasing adoption of extraterritorial legislation have globalized the web of applicable laws and, in many cases, reduced the regions of the world in which fund managers operate.
Fundraising remained strong although there were a variety of experiences, challenges and performances across sectors, strategies and geography. Looking ahead, the reduction in liquidity deployed by some governments and the impact of inflation darken the horizon and have impacted valuations, especially on technology stocks. Country chapters show the impact the pandemic and geopolitics have had on the industry and forecast the lasting and ongoing effects they are likely to have.
Governments continue to show their willingness to review the tax regimes that apply to the fund management industry and businesses in general. The taxation of private equity and venture capital is regularly reviewed and amended. The taxation of interest carried in the private equity sector has been further reviewed. We also anticipate continued discussions on the leveling of capital gains tax with income tax and a focus on corporate tax rates in an international market, as we we have seen in the discussions on a global minimum tax.
As politics in many major economies look increasingly partisan and potentially less effective, heightened corporate social and political activism may well continue, impacting the fund management industry. The challenges to be met are not lacking. Although the pandemic has been a priority, it is of course only the most immediate of several major issues. ESG investing and in particular ESG reporting is becoming a major topic for the fund management industry. The current trend is for some form of ESG reporting to become ubiquitous in the near future. Industry will also play a major role in allocating private capital to the fight against climate change, in particular the decarbonisation of the economy.
We hoped that this 2022 edition of Fund management would see a return to more normal investment conditions. This has not been the case, however, the industry remains resilient and adapting to the legal framework in which it operates.