It all comes down to cost. Setting up your own PCC or ICC has a significant capital outlay, as well as accounting for a minimum annual maintenance cost. If you have deals of only £1 to 5 million, you will require quite a few deals to justify the expense of owning the PCC.
Owning vs. renting is similar to owning a building versus renting the space you need. If you buy a 50-storey building and only use 2 or 3 floors, it will be a costly exercise.
For those just starting out, the right move is to rent a space. Our asset managers are seasoned professionals who excel at understanding investors’ needs and wants. However, the challenge lies in the unknown. They don’t know if they will collect 1, 10, or 20 million. They don’t want the admin hassles of managing the structure (building). Paying only for the Termsheet you need is cost effective and good common sense.
South Africa or other jurisdictions with CFC rules further complicate owning a PCC or ICC. PCCs are well-understood vehicles and therefore a focus point for investors. If a South African Asset Manager buys his own PCC in Guernsey and is the owner, product manager, and distribution agent, he might fall foul of the tax rules. The Asset Manager or investor could end up being taxed at 27%, voiding the actual benefits of owning the structure.
Banks like to own the entire value chain because it is more efficient for them. When a bank is not involved, the sum of the parts can be cheaper than the sum of the whole.
We live in a world that favors this approach, and for good reasons. By bringing together the right people with the right skills, incredible things can be achieved.
Taking the analogy further, if you own your own building, you are responsible for the plans, infrastructure, maintenance, etc. At Orpheus Capital, we provide and maintain the building, and you only rent the space you need. We are responsible for the building and guiding you to your ideal rental solution.