Opportunity for Guernsey funds market as investor demands encourage managers to look at new structures
15 February 2018
Guernsey’s investment industry should see a benefit as managers move to establish more parallel funds in response to investor demand, panellists agreed at the Guernsey Funds Masterclass in London.
Concerns about regulation and increasing costs of popular UCITS funds in Europe are driving managers to consider setting up duplicate structures outside of Europe, and Guernsey is well-positioned to accommodate that demand.
Stratton Street Capital Executive Partner & Chief Investment Officer Andrew Seaman has already made a similar move. He said that managers had to respond to investor concerns about increasing costs. His company launched a Guernsey-domiciled Renminbi bond in 2007 and followed it with a UCITS version in 2013.
“They appeal to very different markets,” he said. “The reason we have both is that they appeal to very different audience – there is huge demand for UCITS in Europe. If you haven’t got it, you can’t really sell in Europe at all. But a lot of regulation and cost goes with it.
“The UCITS brand is extremely successful but comes with a lot of regulation, and eventually it may regulate itself out of business.
“In comparison, in Guernsey the cost of setting up is very cheap, the speed to market is very quick, and if you are based outside of Europe and looking where to put your funds, why would you want to put it in a very bureaucratic, highly regulated area, which is more expensive than elsewhere?
“We are increasingly seeing clients in Asia, Australia, Switzerland and the US considering options other than UCITS. That wasn’t the trend a few years ago but is much more common today.”
“Guernsey supports international investors and should be seen as a pivot to the rest of the world for the City, reinforcing our position as a complementary centre to the UK asset management industry, and we believe our position will only be strengthened after Brexit.”
Guernsey Finance Chief Executive Dominic Wheatley
PwC UK Asset Management Tax Partner Robert Mellor, one of the authors of the firm’s thought leadership articles on the future landscape of the asset management industry, agreed.
“The future for managers is probably having to think about a range of sister vehicles to suit the needs of different investor groups,” he said. “The landscape going forward is more about a tailored conversation with investors on which fund product suits them.
“Cost comes with that, but one thing we find is that US clients don’t want to feel they have to have just an onshore European product. If you push non-euro investors into that, you’re laying all the costs and overlay of reporting and regulation on all the investors who are not causing the issues.
“Investors are getting smarter on what are the real costs of the fund and how relevant they are, and so we have seen the growth of this idea of having more collective ‘sister’ fund vehicles which meet investors’ needs. Managers have to deal with the costs of that, but that is the direction of travel.”
Panel moderator Simon Thornton, founder of private equity investor communications specialists Pearonline, said it was clear that there was a need to focus beyond ‘day-to-day Brexit’ and consider wider global issues in the funds industry.
“There is no single structure right for every jurisdiction, investor base or opportunity set,” he said.
Guernsey Finance Chief Executive Dominic Wheatley said that the panel discussion, and Mr Mellor’s keynote address, had highlighted Guernsey’s ability to take a global approach to fund distribution.
He said: “Guernsey supports international investors and should be seen as a pivot to the rest of the world for the City, reinforcing our position as a complementary centre to the UK asset management industry, and we believe our position will only be strengthened after Brexit.”
The Guernsey Finance-hosted event, which attracted more than 120 people from the London funds sector in a 200-strong audience, also discussed opportunities for the island to help managers overcome uncertainty before Brexit rules and regulations are confirmed.
The panel session at the Guernsey Funds Masterclass. L-R: Robert Mellor of PwC, Sarah Shackleton of Development Partners International, Andrew Seaman of Stratton Street Capital, William Normand of Travers Smith and moderator Simon Thornton.
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