Your correspondent recently attended ISLEXPO, an event hosted on the Isle of Man that focused on business growth and innovation.

Government officials and investment managers based on the Isle of Man have warned that if its troubled funds industry is not resurrected, then further assets could be lost to money managers operating in rival UK Crown Dependencies. 

In 2008, prior to the financial tsunami, funds under management on the Isle of Man hovered around $58 billion. Since then, that figure has plummeted to just $17.68 billion, according to the latest data from the Isle's financial regulator.

And this has set alarm bells ringing for both the Manx government and businesses working in the sector. 

“The funds industry in the Isle of Man is hugely challenging,” said David Long, chief investment officer of Capital International, an investment management house based on the island. “Quite frankly, the funds industry here has collapsed in recent years, and the challenges to resurrect it are very significant," he told this publication recently.

The decline
Over the past decade, more than $40 billion of assets have been withdrawn from the Isle's funds sector. 

But data provided by the Isle of Man Financial Services Authority illustrates a path of decline that is not as clear-cut as one might think.

If we step back just two years to the quarter ended 31 March 2015, there were 345 registered funds with a net asset value of $20.74 billion.

Fast forward one year to the quarter ended 31 March 2016, and there were 328 registered funds, but the net asset value of these increased to $22.24 billion. 

Since then, however, the slump has been more evident. 

The regulator's latest set of figures showed that as of 31 March 2017, there were just 288 registered funds with a net asset value of $17.68 billion, a 20.5 per cent cash decline year-on-year. Since the economic meltdown of 2008, the decline has been staggering, as the net asset value of the Isle's funds sector has plunged 70 per cent.

Challenges ahead
Nick Preskey, high net worth individual strategy manager at the Isle of Man government, recently spoke to this publication on the sidelines of ISLEXPO, a conference hosted on the island, about the hurdles facing the Manx government as it tries to revive its depleted funds sector.

“The funds industry is a really difficult place for us at the moment,” he said. “One of the key factors is VAT. All [fund management] fees attract VAT [on the Isle of Man], and I think this is what makes Guernsey particularly attractive because it doesn't charge VAT. So effectively, there is a 20 per cent discount on what is charged there.”

Preskey said the issue is “on the radar” of the government and that it has commissioned a report examining the sector, the results of which are expected to be published in around a month's time.

Regardless of the report's findings, he admitted that certain obstacles, like the VAT issue, are difficult to overcome, and that “it will take a while before we can work out how to deal with the issues”.

“[The government] wants to spur the sector, but, in truth, I don't know how we could get around the VAT issue,” Preskey said. “One thing being talked about is a carve-out for VAT, but how that would look in reality and how it would be viewed elsewhere I don't really know.”

He added: “Sometimes there is simply a limit to how much we can do.”

But Capital International's Long has argued that a lack of effort from the Isle's financial regulator to stimulate the sector could be stymieing its revival. 

“I don't think there is the regulatory or political appetite to drive the funds industry on the Isle of Man – they're seen as too high risk,” Long said. 

Brexit is another issue the Isle of Man is grappling with.

As reported by this news service earlier this month, the Isle of Man's Chief Minister Howard Quayle has been liaising with figureheads from the UK government since he took up his post last October to ensure the crown dependency “has a voice” in Brexit negotiations. 

Although the Isle of Man is not part of the European Union, the UK's divorce from the bloc will inevitably throw up questions marks, as the island's current entitlement to freely move goods within the EU cannot be guaranteed after Brexit.

And this may not bode well for the funds sector, according to Long. 

“I have my doubts as to whether Brexit will spur the funds industry,” he said. “But I think it is imperative that the Isle's regulatory regime is equivalent and should have equivalent status with the rest of the EU.”