26 March 2015
Guernsey Finance’s Dominic Wheatley explains how the island is working with the BVCA for the future success of British private equity and venture capital.
At the end of last year, Guernsey Finance was delighted to attend the inaugural meeting of the BVCA’s Channel Islands Group.
Guernsey’s geographical location in the English Channel, the island’s close links to the City of London and our position as one of the world’s leading private equity fund domiciles, means that we have always had a close relationship with the association.
This is reinforced by the fact that, for several years, Guernsey Finance has been the exclusive jurisdiction sponsor for the BVCA’s International Series of events held in London. The formation of the BVCA’s Channel Islands Group reflects the increasing number of issues of common interest and demonstrates that working together can be of mutual benefit.
One such area is European regulation that impacts on private equity funds. We have already tackled the initial formulation of the EU’s Alternative Investment Fund Managers Directive (AIFMD), and this has been deemed a success for both the UK private equity industry and Guernsey as a private equity fund domicile.
Guernsey is not in the EU (or wider EEA) and therefore, as a third country, is not required to implement the AIFMD. However, a large proportion of our funds business relates to Europe in some form, and we also have a substantial amount of business that originates from outside Europe.
As such, the island has put in place a dual regulatory regime so that it is possible to continue to distribute funds into both European and non-European countries. The previously existing regime remains for those investors and managers not requiring an AIFMD fund, including those using National Private Placement (NPP) regimes and those marketing to non-EU investors, as well as an opt-in regime, which is fully AIFMD compliant.
Guernsey’s opt-in equivalent regime, which has been in place since January 2014, is appropriate for funds requiring full AIFMD compliance. However, thus far, many Guernsey managers accessing Europe have continued to use the less burdensome NPP regimes.
These are working well, with 34 Guernsey managers promoting funds into 15 EU countries using their NPP regimes during the transitional year for the implementation of AIFMD. Indeed, it is understood that several Cayman Islands-domiciled funds are being migrated to Guernsey to take advantage of the effectiveness of our route for distribution into EU countries using NPP regimes.
For those with a growing non-European focus, it is possible to place this business in parallel or feeder structures for which AIFMD compliance and the associated costs are not required. For example, Investec Asset Management recently re-domiciled a US$1.2 billion fund focused solely on non-EU investors from Ireland to Guernsey, to take advantage of our dual regime response to AIFMD.
NPP regimes are expected to remain until 2018, while full passporting for non-EU managers is expected from July 2015. Guernsey is doing its utmost to ensure that the island is part of the first wave of approved jurisdictions for the third-country passport.
This will ensure that a familiar and local jurisdiction with experience, expertise and a common business culture is able to continue to offer full market access for the UK private equity industry. Guernsey is an integral and thriving part of the British private equity and venture capital industry, and we look forward to keeping it that way with the support of the BVCA.
An original version of this article was published in BVCA Journal, Spring 2015.
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