Brexit-proof Guernsey reaches all four corners of the globe

19 September 2019

Written by Dominic Wheatley Guernsey Finance

In an article for HFM Global's 2019 special report on global distribution, Guernsey Finance Chief Executive Dominic Wheatley outlines findings from research which shows that Guernsey’s distribution capabilities are exactly what many fund managers are seeking.

“Guernsey provides quick, effective NPPR access to more than 70% of the nominal GDP across continental Europe and 80% of global wealth.”

A survey carried out by Guernsey Finance, the promotional body for the financial services industry in the island, at the SuperReturn International conference in Berlin, showed that more than half of managers were seeking better service and looking to cut costs, and would consider splitting fund structures to achieve that.

More than half of firms surveyed are considering reviewing their distribution and structuring of investment funds in the next 12 months. Some three-quarters had reviewed their distribution arrangement in the previous two years.

Market access remains their key priority. And managers are starting to recognise Guernsey’s credentials in global distribution – proven routes to market to institutional investors in more than 50 jurisdictions, across five continents, including the EU, the United States and China.

Standards of service are also a factor of growing concern. More than half of managers say that they consider service levels to be extremely important, and that may influence a change of jurisdiction.

And the survey also showed that more than half of managers would consider splitting global and EU distribution where it led to improved service and reduced costs. Whilst costs are being mitigated by technology, they are also rising in response to the ever-growing EU regulatory burden. More than a third said this issue was a significant concern to them.

Guernsey funds are able to reach investors in jurisdictions representing more than 80% of the world economy. Guernsey’s European distribution is through National Private Placement Regimes (NPPR), which provide a proven, smarter, faster and cheaper route to access European investors than EU member state alternatives. Our “four corners of the globe” distribution model needs to be more widely recognised.

We are ideally placed to offer access to worldwide markets, greater certainty for managers and promoters, and more cost-effective solutions with higher levels of service than many of our competitor jurisdictions.

Many promoters think that they need to have a Ucits or an AIF but, when they actually analyse who their target market is and what they require from their fund, a Guernsey vehicle very often turns out to be a better regulatory fit, and offers a cheaper, faster solution.

The European Commission’s own figures, from just a couple of years ago, show that 70% of all EU funds are registered for sale in just one Member State, and only 37% of UCITS and just 3% of AIFs are sold in more than three Member States.

These figures expose the Ucits “myth” that Ucits is the only real option for fund structures sold in Europe and prove that the AIFMD passport is not the panacea it might appear.

NPPR has been successfully used many times for marketing into Europe and is well understood as a path for distribution for both managers and promoters, supported by Guernsey-based service providers. It is an effective alternative, particularly for those with a targeted list of marketing jurisdictions.

Guernsey provides quick, effective NPPR access to more than 70% of the nominal GDP across continental Europe.

The island is also positioning itself as the stable alternative throughout the Brexit period and beyond, playing on a 50-year heritage of acting as a conduit for inward investment into the UK and Europe – ideally placed as a jurisdiction to provide certainty to managers, promoters and placing agents.

A recent example comes from Guernsey-headquartered financial services group PraxisIFM, which is providing fund administration and governance services to the Aquila European Renewables Income Fund, a UK-domiciled investment trust investing in renewable energy infrastructure investments across continental Europe and Ireland.

The fund is administered by PraxisIFM in London, but the fund’s alternative investment fund manager requirements are being provided by PraxisIFM’s Guernsey-based company International Fund Management Ltd (IFM), which has more than $5bn of assets under management.

The fund, listed on the main market of the London Stock Exchange, is the first in its sector to be pan-European, investing in hydro power, solar and wind.

“The decision to appoint IFM as manager was not only due to our experience and high service levels, but also Guernsey’s position as a non-EU AIFM jurisdiction, which provides clarity in a post-Brexit environment, for both a UK investment manager marketing into Europe, and also a European investment manager marketing into the UK,” said Shaun Robert, Director of IFM.

“With Guernsey having mature co-operation agreements in place with the majority of EU jurisdictions, and IFM already successfully marketing into Europe via National Private Placement Regimes, this route will be unaffected post-Brexit.”

While most Guernsey-based funds utilise NPPR to sell into two or three European countries there are known cases of funds using the regime to sell in six or seven countries. One Guernsey fund launched earlier this year registered for sale into six European countries as well as utilising registration or exemptions to sell into a number of other countries including Switzerland, Hong Kong and Singapore.

With Brexit uncertainty in the financial sector both in the UK and the EU due to continue until at least 2022, opportunities to use the well-established AIFMD and Ucits route for fund marketing into Europe are likely to be lost to UK funds.

Given that Guernsey’s current access to market into Europe via NPPR will be unaffected, this is seen as an opportunity for the island, which is one of only two jurisdictions to be approved by European funds regulator Esma for the third country passporting regime under AIFMD twice without condition.

Guernsey is a mature, highly experienced and transparent jurisdiction, with requisite economic substance as required by the EU’s Code Group on business taxation as was confirmed by our tax regime whitelisting by the EU in March this year. It is time for our global distribution strengths to be clearly understood and acknowledged.

Christopher Jehan, Chair of the Guernsey Investment & Funds Association, outlines Guernsey’s distribution strengths

One key issue when choosing a fund jurisdiction is the distribution footprint it can achieve. Guernsey funds have pedigree in many key markets and are known to many regulators worldwide.

The island is in the top four jurisdictions outside the US and Canada for Regulation D private placement into the US,is one of the top four jurisdictions for registering funds for sale to retail clients in South Africa andone of only three jurisdictions outside the European Union and European Economic Area to have a retail fund sales Memorandum of Understanding with Switzerland.

All types of Guernsey fund have been successfully registered for retail sale in Bahrain, while a Guernsey umbrella fund is one of only four non-Ucits to register for retail sale in Luxembourg.

Guernsey has all three regulatory Memoranda of Understanding with Chinese regulators, allowing it to reach the widest range of Chinese investors currently possible.

Together with our established NPPR arrangements with EU member states, this delivers one of the widest possible networks for distribution of funds to our clients.

This article first appeared in HFM Global's 2019 Global Distribution special report, August 2019. Click here to read the full publication.

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