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Manager Led Product is Guernsey’s latest fund offering

30 June 2016

Written by Dominic Wheatley

The MLP launch is expected to add to Guernsey’s attractiveness as a domicile, writes Guernsey Finance Chief Executive Dominic Wheatley. He also reports that two notable funds migrated to Guernsey at the turn of the year.

Guernsey has always adapted well to the changing requirements of fund managers and investors. Indeed, our core strategies as a finance centre are founded on a reputation for quality, compliance, economic stability, effective regulation, substance and the ability to respond quickly to changing market demands. With this in mind, we have introduced many changes over the years to bring flexibility and ease of doing business to the market while not compromising our strategic positioning.

2016 has seen a continuation of this with the introduction of Guernsey’s manager led product (MLP), which shifts the focus of regulation to that of the managers, rather than relying on the direct regulation of funds themselves.

MLP concept

Officially launched at the annual Guernsey Funds Forum in May, the MLP aims to ensure a proportionate risk-based level of product regulation for any Alternative Investment Fund Manager (AIFM) that establishes itself in Guernsey and seeks to market into Europe under national private placement regime (NPPR) arrangements. The main attraction is that the MLP will allow one AIFM to absorb all the incidence of conduct and capital adequacy rules, permitting many fund structures – whether limited partnerships or other – to exist under its banner.

In this first application of the principle, MLPs will respond to the same market pressures that have given rise to Luxembourg’s Raifs and Malta’s Naifs, allowing appropriate derogation of AIFMD rules and facilitating streamlined and more efficient fund formation processes.

However, MLPs go further than both Naifs and Raifs in allowing regulatory efficiencies for managers housing several funds in Guernsey, while maintaining appropriate segregation, thereby nullifying contagion risk. We believe this offers a very attractive vehicle for managers needing substance in the island. Once an AIFM has been licensed by the Guernsey Financial Services Commission (GFSC), they will then be able to launch new partnership structures and corporate funds by simple notification. Capital will be concentrated at the AIFM level. This will facilitate the quick and efficient launch of new funds with a minimum requirement for red tape but with no diminution of the quality of regulatory oversight.

The principles underlying this product will ultimately produce a separate regime for non-AIFMD managers marketing outside of Europe. We see this as very much the first of a number of developments based on a similar theme of moving the focus of regulation to facilitate greater ease of doing business and speed to market without compromising on regulatory standards.

Working together

Encouragingly, the creation of the MLP came about through discussions between the GFSC and industry practitioners, thereby demonstrating the pragmatic and open-door approach to regulation that our financial services regulator has become renowned for. It also ensures that such developments are effective and practical. A similar approach has been taken with Guernsey’s plans for its own very private funds regime. Productive meetings between representatives from the Guernsey Investment Fund Association (GIFA) and the GFSC have already taken place and a consultation period with wider industry is expected to follow soon. Recommendations will likely include a relaxation of prospectus disclosures while maintaining high standards of governance.

Fund migrations

In addition to the launch of the MLP, Guernsey’s funds industry has seen a number of positive recent developments. For example, the VinaCapital Vietnam Opportunity Fund completed its migration from the Cayman Islands to Guernsey. The closed-ended investment company, which had net assets of $710.5m at the end of March 2016, 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.

Another fund relocation has seen SafeCharge International Group Limited migrate from the British Virgin Islands. 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 £400m. SafeCharge’s decision to move to Guernsey was motivated by several factors, but the key factors among them were Guernsey’s reputation for LSE listings and that it would therefore be well-positioned for a potential move to the London Stock Exchange’s Main Market in the future.

Having its domicile in Guernsey will also enable the company to enjoy greater exposure to potential investors, thereby facilitating liquidity in its shares.

China MOU

GIFA signed a Memorandum of Understanding (MoU) with the China Association of Private Equity (CAPE) in March 2016. 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. 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.


The launch of the MLP is not the only example of the regulator working effectively with industry in Guernsey. Another was Guernsey’s response to AIFMD, which included early and pro-active engagement with Brussels throughout the evolution of the Directive. Cathy Pitt, a corporate partner at leading global funds lawyers CMS in London, has praised this approach and said it was a likely factor behind the European Securities and Markets Authority (Esma) announcement in July 2015 that recommended Guernsey for a third country passport under AIFMD.

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

“Regulators and lawmakers worked alongside industry to develop a regulatory regime that is compatible with the Directive, while leaving market participants the flexibility to fall within or without the AIFMD regime for so long as Europe permits. The GFSC was also able to demonstrate to Esma a culture of robust enforcement and co-operation with EU regulators that gave Esma the confidence to recommend the extension of the AIFMD passport to Guernsey,” said Ms Pitt.

Guernsey’s response to AIFMD was to introduce a dual regulatory regime in which it is possible to continue to distribute Guernsey funds into both European and non-European countries. This consists of the existing regime for those managers not requiring an AIFMD fund, including those using NPPR and those marketing outside Europe, as well as an opt-in regime which is fully AIFMD compliant.

Guernsey’s regime enables managers and funds with no connection to Europe to continue to operate under Guernsey’s existing regulatory framework, which is completely free from the requirements and costs associated with AIFMD. For managers wishing to market into Europe, Guernsey provides a platform to access all the benefits and opportunities of European capital markets, but crucially is not actually in the EU.

Figures released in Esma’s July 2015 advice also underlined how Guernsey is a key route into Europe for AIFs. Data showed that Guernsey was in the top three non-EU fund domiciles when it came to the number of non-EU AIFs being marketed into Europe: in particular, core markets such as the UK, Ireland, Sweden, Benelux, Finland and Denmark.

Key facts: Figures for the island’s fund industry to the end of December 2015 show that the sector has enjoyed year-on-year growth, with the net asset value of all funds under management and administration reaching £227.6bn – an increase of £8.2bn (3.7%) on the same point in 2014.

Guernsey remains the jurisdiction of choice for entities listing on the 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).

An original version of this article was first published in HFMWeek’s 2016 Guernsey report, June 2016.

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