Roundtable - The desire to innovate: Guernsey, a jurisdiction of choice for alternative asset classes
08 November 2016
The roundtable can be viewed in full by clicking on the download arrow on the right hand side of this page.
Last year PwC forecasted an increase from $10 trillion to $18 trillion to be invested globally in alternative assets by the end of this decade. PwC predicts that hedge funds, private equity, and real estate investments will make up 75% of this $18 trillion. Guernsey continues to be seen as a jurisdiction of choice for these alternative asset classes, including debt. Within each of the sectors, the jurisdiction has seen strong growth and more new niche products, in the funds sector for example FinTech focused funds, Islamic funds and impact investment funds.
Guernsey is the leading overseas jurisdiction for London Stock Exchange listings, and a global player in captive insurance. More than one-third of new insurance vehicles in Guernsey are being established as insurance-linked Securities (ILS), financial instruments whose values are driven by insurance loss events. Apart from the UK and Europe, Guernsey services a wide range of clients in China, Southeast Asia, United States, South Africa and the Middle East.
Guernsey’s new Manager-Led Product is not only innovative but actually goes a step further than innovations we have seen in other jurisdictions this year such as the RAIF in Luxembourg, the NAIF in Malta or the still to be launched JRAIF in Jersey. Rather than just allowing the registration of a fund within 24 hours, both the fund and the general partner could be registered within 24 hours, subject to the general partner being the subsidiary of an fully licensed alternative investment fund manager.
The desire to innovate
The development of the finance industry on Guernsey goes back 50 years or more and really began to mature in the 1970s and 1980s through the fiduciary and international pensions industries and the investment funds business and insurance. The island’s extraordinary focus and ability to innovate on a global scale became clearly visible in 1997 when Guernsey established the world’s first protected Cell Company (pCC) legislation with the consequence of significantly boosting the insurance industry. Guernsey was also one of the first jurisdictions to start regulating trust company service providers (TCSPs) properly.
Right at these beginnings, Guernsey put in place specific regimes aimed at banks, captive insurance companies and then in time to funds as well. The regimes enable tax neutrality, which ensures that no additional layer of taxation is created within the investment structure. Investors, the end client, will of course pay tax in their home jurisdiction depending on their own position, but the fund vehicle and related entities set up in Guernsey suffer no taxation there, thus preserving tax neutrality. But ultimately, Guernsey’s fund industry owes its success to the quality of people it has attracted over the decades and continues to attract today. Locals say the island has become pretty cosmopolitan, also thanks to initiatives like Locate Guernsey which assists companies, like fund managers, in coming and establishing physical presence in the island as well as helping to relocate senior executives there. At the end of December 2015, there were 173 investment managers operating from Guernsey with a combined gross assets under management of £142.5 billion.
Guernsey and the EU
Guernsey has never been part of the EU, which is the island’s largest and closest market. 40% of Guernsey’s private equity investment flows go into the EU, 64% of venture capital investments and 65% of infrastructure funds. From a marketing perspective, Guernsey alternative investment funds can market into the EU via the National Private Placement Regime. Over a considerable number of years Guernsey has been able to demonstrate equivalence to EU standards and offers a dual regime where managers can opt into an AIFMD equivalent regime, or they can also opt to stay outside of it. In fact, for many the Guernsey regulatory regime enhances speed to market and it can be less expensive and onerous than marketing a fully AIFMD compliant structure.
The European Securities and Markets Authority has given a very positive recommendation to the European Commission that Guernsey along with only four other so-called third party jurisdictions be granted an AIFMD passport, and the European Commission is currently reviewing the European Securities and Markets Authority’s advice. Over the years, Guernsey has also adopted all international standards on transparency. MONEYVAL, the Council of Europe’s anti-money laundering group which works on administering Financial Action Task Force standards in the European continent, gave the highest rate of compliance to Guernsey’s Anti-Money Laundering and Counter-Terrorism Financing Regime that it has ever given to any jurisdiction.
The Opalesque Guernsey Roundtable took place in St. Peter Port, Guernsey, with:
- William Mason, Director General, Guernsey Financial Services Commission
- Annette Alexander, Partner, Carey Olsen
- Haley Camp, Founder, Centillion Consulting and Chair, Guernsey Investment Fund Association Technical Committee
- Christopher Jehan, Founder, Midshore Consulting and Vice Chairman, Guernsey Investment Fund Association
- Dominic Wheatley, Chief Executive, Guernsey Finance
- Matt Wood, Director of Private Equity, Sanne Group
- Tony Mancini, Tax Partner, KPMG Channel Islands
The group also discussed: • Why BEPS, the OECD’s Base Erosion and Profit Shifting initiative, will not affect Guernsey • Why Guernsey is viewed as an exceptional partner also for smaller firms • What is Guernsey’s Innovation SoundBox and how can managers profit from it? • Connectivity / travel and the island’s infrastructure • Wealthify: The robo-adviser that came out of Guernsey • How do regulators view robo-advisers? • Work-life balance in Guernsey
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