In line with its continuing commitment to offering innovative products and services, Northern Trust (Nasdaq: NTRS) can transform Fonds Commun de Placement (FCP) mutual fund structures used by investment managers into tax-efficient structures which optimise tax transparency and reduce withholding tax drag.
According to Northern Trusts proprietary calculations, dependent on the mix of assets in the portfolio, mitigating taxation on dividend income for institutional tax-exempt investors in FCPs through its solution could save investors up to 50 basis points per annum.
An FCP is a tax transparent entity established in Luxembourg through which investors may qualify for reduced withholding tax rates on equity dividends. This transparency can help investment managers improve performance, increase investor returns, and increase assets by aggregating tax exempt investors from multiple jurisdictions.
By their nature, all FCPs are tax transparent, however we are seeing a number of FCPs which are not fully optimised to access the benefits of withholding tax transparency, said Martin Shah, Partner at Simmons & Simmons LLP, a leading international investment funds law firm working with fund managers looking to optimise the tax transparency of their investments. Northern Trusts solution to change the structure of these funds to enable them to access the benefits of tax transparency is, in our experience, a much simpler solution than moving investors into an alternative fund vehicle.
Withholding tax efficiency can be a performance differentiator, particularly in the current market environment, said Aaron Overy, head of asset servicing pooling business development at Northern Trust. Our pooling platform has been specifically created to remedy the technical obstacles to tax transparency for FCP mutual funds, without the disruption of a fund migration, and with all operational, legal and tax considerations causing little to no disruption to the day-to-day business of fund management.
Northern Trust is a pioneer in cross-border tax transparent asset pooling and was the first to fully support tax-transparent funds, created to pool the assets of investors from multiple jurisdictions with multiple tax rates, investing in multiple jurisdictions. This latest solution to optimise the fiscally transparent nature of FCPs follows proprietary research announced earlier this year which found that a tax-transparent asset pooling vehicle can enhance returns by as much as US$81 million on a US$1 billion portfolio invested in broad market indices over a 10 year period.
As of June 30, 2012, Northern Trust has 25 clients on its tax-transparent, global pooling platform, with more than U$62 billion of assets under custody. Earlier this year it announced it had become the first custodian to work with a client to secure reduced withholding tax rates for Swedish investors holding equities through a tax-transparent, cross-border asset pooling vehicle.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2012, Northern Trust had assets under custody of US$4.8 trillion, and assets under investment management of US$749.7 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.
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