The extra dimension

21 August 2018

Written by Fiona Le Poidevin

Guernsey’s core funds messages have been given a global boost with the publication of a new report on Guernsey Fund Services, produced with Global Fund Media. The report identifies Guernsey as a leading jurisdiction for both start-up managers and established funds. Here, Fiona Le Poidevin explains how to make best use of the Guernsey-headquartered International Stock Exchange.

There were 705 new listings on The International Stock Exchange (TISE) during 2017, which was an increase of 40% on the previous year. In the first quarter of 2018, there was a 16.5% rise year on year in new business, which took the total number of listed securities on the Exchange to 2,606 at the end of March 2018. These listings comprise a mix of equity and debt being issued by operating companies and nearly 400 securities issued by investment vehicles, including open and closed-ended funds and more than a quarter of all HMRC approved Real Estate Investment Trusts (REITs).

Asset managers often cite us as being cost-effective and convenient, but a listing on TISE also enables greater distribution of a product and demonstrates additional substance for the structure.

International initiatives such as AIFMD and BEPS have placed increased focus on the substance of investment structures.

Asset management groups with vehicles listed on TISE are able to demonstrate additional substance in Guernsey by utilising this element of the local infrastructure. Furthermore, greater value is provided through the activity undertaken locally to ensure both initial and continued adherence to the listing rules.

These requirements drive transparency and good corporate governance, which in themselves create value within the structure as important factors for investors. Indeed, it is precisely for these reasons that many investors are mandated to only invest, or invest a certain proportion of their allocation, into listed products.

The definition of ‘listed’ can vary but importantly for us, especially in the context on the UK market, HMRC deems TISE to be a recognised stock exchange. This enables investment into TISE-listed products by Self-Invested Personal Pensions (SIPPs) and Individual Savings Accounts (ISAs), which is key for many institutions who invest on behalf of their clients.

Additionally, it means that TISE is considered a recognised stock exchange and listing venue under HMRC’s REIT regime. We have a cost-effective and pragmatic admissions process, including an exemption for REITs from the 25% free float rule. Today, more than a quarter of all UK REITs are listed on TISE. 

HMRC’s recognition also means that products listed on the Exchange may be able to avail of the Quoted Eurobond Exemption (QEE). Its utilisation includes those fund groups, such as private equity managers, who establish listed debt vehicles to finance acquisitions. Listing these special purpose vehicles on TISE also demonstrates further use of the local infrastructure and therefore adds additional substance to the overall arrangements.

TISE has a number of other recognitions, including from the German regulator, BaFin. This means that TISE-listed products are automatically eligible assets as part of the ‘listed’ investment allocation of German insurers and German UCITS funds.

Indeed, TISE-listed products are already eligible ‘listed’ assets for UCITS funds established in not just Germany but also Finland, Iceland, Poland and Spain. UCITS funds from another 19 EEA jurisdictions, including France, Ireland, Luxembourg and the UK, can treat TISE-listed products as eligible listed assets by disclosing TISE within the fund documentation as a potential source of investable assets.

A TISE listing can help provide additional substance to an investment structure and at the same time, increase the distribution by helping to expand the allocation of potential investors from different jurisdictions.

Fund managers can – and do – use TISE to help them raise money from investors based around the globe so that they can invest into a variety of types of projects in different parts of the world. This demonstrates the role which TISE plays in helping to facilitate the flow of capital across global markets.

An original version of this article first appeared in The Global Fund Media special report on Guernsey fund services, July 2018. Click here to access the full report.

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