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Opportunities and risks for the funds sector in 2022

11 April 2022

Written by Jo Peacegood & Stephen Rouxel Guernsey Investment & Funds Association

What lies ahead for the investment funds industry over the next year? Jo Peacegood and Stephen Rouxel, Chair and Vice Chair of the Guernsey Investment & Funds Association respectively, share a few predictions, and what it will mean for Guernsey.

Jo Peacegood

There is a significant amount of global capital available for investment which means the funds market continues to grow globally. We have seen the statistics from the Guernsey Financial Services Commission (GFSC) in 2021 and the sector continues to thrive. We have also heard from service providers (locally and in some of our key markets) that there is a healthy pipeline which all puts Guernsey in a strong position to continue to flourish.

Guernsey’s offering is compelling. We have a fit-for-purpose system, highly regarded service providers with great depth of experience who are also flexible and adaptable to investors requirements, as well as an approachable regulator - so all of the key ingredients. However, with the economic pressures created by COVID coming to bear, and a number of new global tax initiatives, Guernsey needs to ensure it is on that global stage marketing its experience in the funds industry and ensuring that we are promoting the island as a force for global good; and that requires the power of the whole industry to pull together and continue to market Guernsey as the jurisdiction of choice.

Investor protection, tax and AML continue to be topical and Guernsey continues to ensure that it adopts relevant global standards while also considering investor requirements and market expectations, hence putting relevant protection around investors’ assets and ensuring it is well placed to stand up against global challenges.

Technology continues to be driving growth as well as being an attractive investment opportunity. It also gives companies (specifically service providers) an edge to be more effective and efficient as well as combat the employee shortage that all jurisdictions are facing, and respond to unforeseen challenges such as the pandemic.

Regulation is being introduced around cryptocurrency to protect potential investors and hence this is becoming a more mainstream and accessible asset class. Guernsey has already authorised a crypto ETF, thus demonstrating innovation and building experience in the field. We are also expecting to see growth in more esoteric assets.

In addition, we are expecting to see growth in private equity and real estate. Guernsey has been servicing these asset classes for over 50 years, and so has a huge depth of expertise. We are expecting to see increased investment as investors start to look outside the more traditional asset classes.

ESG continues to expand, with many getting a better hold on what the E, S and G actually mean. Guernsey has been building experience in this sector for a number of years and is considered to be a market leader, so is able to support investors and sponsors in this area alike.

Speed to market continues to be sought after, and Guernsey’s established fast track regimes have made the island a market leader; when combined with expert service providers committed to the highest levels of client services, this puts us in a strong position.

We are expecting to see the UK start to put the foundations in place to build their financial services sector, so working closely with the UK will be integral and may also help to build our sector. At the same time, Guernsey needs to continue to focus on its renewed strategic target markets and continue to adapt its regimes as needed.

Stephen Rouxel

Opportunities

There is plenty of opportunity for Guernsey in 2022 if the island’s financial services sector is ready to grasp it. Global money will start to swing back this way as there is a glut of distressed assets at rock-bottom prices. I am seeing a lot of focus in global real estate opportunities. Our speed to market point could be substantial for real estate product development.

As private market managers start to try and tap private wealth markets, there may be a way for Guernsey to get into the aggregation business working with our fiduciary colleagues. More and more fiduciary businesses are picking up fund licences – we need share our knowledge and expertise with these firms and grow this area.

We have seen increased cooperation amongst governments in introducing substance requirements and bringing in a global minimum tax rate. Some tax authorities are challenging existing structures around meeting directives in place. We expect there to more guidance to facilitate this and firms would have to adopt to these new standards.  

Threats

Deglobalisation

Protectionism by nations will continue to impact on global capital flows and on finance centres. I don’t see this trend reversing yet although it seems to have stabilised. There is a risk that other finance centres are starting to move to capitalise on geographic opportunities. Luxembourg for Europe, Singapore for Asia. Guernsey will really only have an advantage in the UK who are trying to replace us so we need to set out our stall a bit more.

Geopolitical Conflict

Rise of East-West sanctions and conflict will impact on everyone but will focus where we can do business. A great example is the Chinese data protection law which is a reaction to the Huawei/US issues. Sanctions will play an ever bigger role (and growth in sanctions over the last couple of years has been evident) which impacts substantially on financial services centres.

Learn more about investment funds in Guernsey in London on 12 May, at the 2022 Guernsey Funds Forum: Endless Opportunities.

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