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Funds in Guernsey

20 June 2016

Written by Dominic Wheatley

Guernsey Finance Chief Executive speaks to Corporate INTL about Guernsey’s fund industry and some of the latest developments.

Guernsey Finance is the promotional agency for the island’s finance industry internationally. The joint government/industry body is responsible for promoting Guernsey as a leading international finance centre, including its internationally renowned banking, investment funds, private wealth and insurance sectors, across traditional and emerging markets. Headquartered in Guernsey, the organisation also has representation in Shanghai, Hong Kong and Dubai.

Within the funds space specifically, Guernsey Finance has also become well known for hosting the hugely popular Guernsey Funds Forum in London. The conference, which takes place in May each year, is a one-day event that attracts around 500 funds professionals.

Funds in Guernsey

According to Dominic Wheatley, chief executive of Guernsey Finance, Guernsey’s funds industry remains in a good place. Most recently available figures from the Guernsey Financial Services Commission (GFSC) to the end of December 2015 show that the island’s funds sector has enjoyed year-on-year growth, with the net asset value of all funds under management and administration in the island reaching £227.6 billion - an increase of £8.2 billion (3.7%) on the same point in 2014.

In total, Guernsey’s financial services regulator approved 86 new investment funds during last year, comprising 63 closed-ended funds, eight open-ended funds and 15 non-Guernsey open-ended schemes, meaning the total number of funds currently approved for domiciling or servicing in Guernsey stands at 1,012.

“Guernsey also remains the jurisdiction of choice for entities listing on the London Stock Exchange (LSE),” said Mr Wheatley. “LSE data shows that at the end of December 2015 there were 129 Guernsey-incorporated entities listed on the Main Market, AIM and the Specialist Fund Market (SFM) – more than any other jurisdiction globally (except the UK).”

Mr Wheatley highlighted a recent KPMG report, titled ‘International Capital Flows’, which further reinforced Guernsey’s reputation as a leading funds domicile after revealing the extent to which the island facilitated the flow of capital globally, including £105 billion of investment in Europe – 49% of which originates from investors located outside Europe itself.

“The report highlighted Guernsey as an integral conduit facilitating the raising of capital from investors in different countries, subsequently allowing for the redeployment of this capital into global assets,” he explained. “The report emphasised the fact that global investors are comfortable utilising Guernsey structures, in large part due to the island’s reputation, regulatory track record and high standards of transparency. Similarly, it reaffirmed Guernsey’s particular expertise in alternative investment assets – a key asset class for many investors.”

Positive Developments

Mr Wheatley stated that there have already been some positive developments in 2016. The Guernsey Investment Fund Association (GIFA) has signed a Memorandum of Understanding (MoU) with the China Association of Private Equity (CAPE). The agreement sets out a statement of intent to facilitate collaboration in the areas of training, corporate governance, events, research and public affairs.

“Our funds industry, particularly the private equity and venture capital space, has considerable expertise and substance to call upon which we are more than happy to share with our counterparts in China,” he elaborated. “We know there is significant interest in China and Asia generally in doing business with Guernsey and we hope the MoU will help to facilitate those business flows, while also bringing long-term benefits to all members involved.”

Other developments include the VinaCapital Vietnam Opportunity Fund completing its migration from the Cayman Islands to Guernsey. The closed-ended investment company, which had net assets of $710.5 million at the end of March, is one of the largest and most successful funds investing in growth areas in the Vietnamese economy.

“In explaining the reasons for the migration, the fund’s directors said it had become apparent that its place of domicile was a barrier to certain potential new investors, while reasons for choosing Guernsey included its well-established infrastructure for the administration of closed-ended funds listed on the LSE and a robust regulatory and compliance regime,” continued Mr Wheatley.

Another fund relocation has been SafeCharge International Group Limited which migrated from the British Virgin Islands to Guernsey. A provider of payments services, risk management and IT solutions to global online businesses, SafeCharge is listed on LSE’s AIM and is currently capitalised at about £400 million.

“SafeCharge’s decision to move to Guernsey was also motivated by several factors, one of those being Guernsey’s reputation for LSE listings and that it would therefore be well-positioned for a potential move to the LSE’s Main Market in the future,” he added. “Having its domicile in Guernsey will also enable the company to enjoy greater exposure to potential investors thereby facilitating liquidity in its shares.”

Guernsey’s Advantages

In the current environment, Mr Wheatley believes that investors are looking towards jurisdictions with a track record, expertise and substance.

“Take the example of private equity which has been taking place in Guernsey for 20-25 years, other international finance centres with fledgling private equity industries simply don’t have the infrastructure, including the experienced Non-Executive Directors (NEDs), as experience comes over a period of time, through growing, learning and adapting,” he said.

He also stated that Guernsey has the advantage of significant substance already being present in existing structures, which he believes is the reason that Guernsey has continued to see new funds launch throughout the introduction of Alternative Investment Fund Managers Directive (AIFMD) in 2013 and during the OECD’s Base Erosion and Profit Shifting (BEPS) consultations more recently.

“Guernsey is also home to an enviable community of experienced NEDs that are specialist in the areas of private equity, infrastructure, real estate and debt, amongst other things,” he added.

Response to AIFMD

A recommendation by the European Securities and Markets Authority (ESMA) in July 2015 to grant Guernsey a ‘third country’ passport under AIFMD was certainly welcomed by the island’s funds sector and further reinforced its appeal, particularly to non-EU managers.

“Guernsey is one of only three jurisdictions to receive the recommendation to date, which, if approved by the relevant European authorities later this year, would further enhance Guernsey’s position to distribute funds into Europe,” said Mr Wheatley.

In response to AIFMD, Guernsey introduced a dual regulatory regime that meant it was possible to continue to distribute Guernsey funds into both European and non-European countries. This regime consists of the existing approach for those managers not requiring an AIFMD fund, including those using National Private Placement Regimes and those marketing outside Europe, as well as an opt-in regime which is fully AIFMD compliant.

Impact of Fintech

Mr Wheatley believes that fintech will continue to have a greater impact on how people invest and what investors look to invest in. Investments into fintech start-ups have increased substantially in recent years, while crowdfunding – a segment within the fintech market – has itself become an increasingly used funding source.

“Guernsey is playing its part in this fintech growth too,” he commented. “Funding Circle, the peer-to-peer lender listed its small business investment trust on the LSE Main Market at the end of last year.”

Based in Guernsey, the closed-ended collective investment scheme raised £150 million and is focusing on loans to small businesses in the UK, US and Europe. Similarly, White Star Capital, a transatlantic venture capital group, raised $70 million in LP commitment for its first institutional fund at the end of last year. The Guernsey-domiciled investment vehicle will deploy between $500,000 and $5 million in initial investments into fledgling technology companies across North America and Western Europe.

More recently, the founders of Guernsey investment company RAW Capital Partners have played leading roles in the launch of a new online investment service by fintech firm Wealthify.

“The service, which is designed for the digital age, is open to anyone with any amount to invest and requires zero investment knowledge. Customers follow a simple online process to sign up in minutes. Behind the scenes, Wealthify experts build personal investment plans aligned to an individual’s attitude to risk, then invest, monitor and manage their money for them every day,” concluded Mr Wheatley.

An original version of this article was first published by Corporate INTL, June 2016.

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