Private equity is becoming more popular and families are increasingly allocating it to offshore trusts for regulatory reasons, according to Guy Paterson of Stanhope Capital.

Private equity is becoming more popular and families are  increasingly allocating it to offshore trusts for regulatory reasons, according to Guy Paterson of Stanhope Capital.

The investment guru recently told Compliance Matters that a family office with an offshore trust has a great regulatory advantage over an individual investor when it comes to investing in private equity.

He said: "We buy private equity funds for clients. We arrange for them to sign a commitment to those funds in the form of a subscription agreement. This is of interest to the offshore world because if sassy investors are increasingly investing in the unquoted space, that is in specialist credit funds, then that’s what trustees should be looking at.
 
"To complete the picture, there is a rather nice advantage for offshore trustees over people in the UK, which is that in January this year, British regulators brought in a whole new series of restrictions against promoting unquoted investments to retail investors. This, quite rightly, was designed to deal with the independent financial advisor in the high street flogging some strange investment to Mrs Snooks, but actually it also affects firms like ours that look after wealthy families, because most individuals in the UK have to be treated as retail investors, however rich they are.

"It is very difficult for an individual of high net worth to be classified as a professional investor. He has to have amazing expertise to qualify. But if our client is a Channel Islands trust company, or an Isle of Man trust company, it would be a regulated entity and automatically treated as a professional investor.

"Offshore trustees should be looking at private equity as an asset class, partly because they have this strange advantage over individuals. For a UK family it’s much easier to allocate the private equity to the family’s offshore trustees."