Joe Truelove, Director of Carey Commercial Limited shares his thoughts.
People like pigeon holes and businesses like silos. Large organisations seeking to maximise efficiency group together similar clients and build teams to serve them so they can share experience, utilise common systems and deliver consistent solutions to similar clients. Generally funds are administered in specialist fund administration teams and trusts are looked after by specialist teams of appropriately qualified trustees. Silos are created, systems are implemented and everyone knows what styles of clients fit where. Service delivery is "solutionised"!
But what if a private client wants to utilise a fund structure that a typical private client trust team is unfamiliar with like a General Partner and Limited Partnership or a Protected Cell Company? What if a private equity fund manager wants to launch a fund but can only find one investor so it's not actually a fund? What if a fund manager needs a combination of fund administration and trustee services?
These are increasingly common situations. Fundraising for investment funds has been very difficult for a number of years now. Rather than abort the fund launch private equity fund managers are increasingly entering into club deals, joint ventures and forming single investor funds. In the open ended fund world the term "separate managed accounts" has become increasingly popular. There is no legal definition of a separate managed account: it has only one investor; it's not a fund but it looks like a fund. Many commercial properties in the UK and elsewhere are owned through Guernsey Property Unit Trusts (GPUTs) or other special purpose vehicles (SPVs). These are corporate trustee arrangements with trusts which issue units, not the classic discretionary trust, and may or may not be considered as funds.
In these circumstances firms may need to build bespoke solutions and smaller more entrepreneurial firms with staff who have a range of professional experience spanning both trustee services and corporate administration are well placed to understand client requirements and provide an appropriate service.
Given ever greater regulation in the EU, the styles of investment funds forming in jurisdictions such as Guernsey which are outside the EU are increasingly those which are not regulated and may not even be funds. The expression "family office" is regularly bandied about. Family offices have long been courted by hedge fund managers at conferences held in Monaco where family office representatives attend for free. Now private equity managers are chasing the same investors and creating "high net worth feeder funds" to allow them to invest into their acquisitions. In these circumstances managing the structures will need a mix of skills and Guernsey is very well placed with its strong funds and fiduciaries sectors to provide services to these hybrid structures.
The ideal service provider for this style of hybrid client would itself be a hybrid team. The firm would need to be dual licensed under The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000 and the Protection of Investors (Bailiwick of Guernsey) Law 1987. The firm would have a long track record and existing clients who invest in real assets whether that means private trading companies, property, infrastructure, ships and planes etc. The company would be used to working with entrepreneurs, adopt a commercial approach and be able to make decisions locally. The team in question would understand both regulatory regimes in place and be close enough to the GFSC so that when these sometimes unusual structures are first mooted the new business representative feels confident to discuss any issues direct with the regulator. Ideally individuals within the team would have a mixture of company, trustee and fund experience and relevant qualifications. Being a member of the Channel Islands Stock Exchange would be an additional advantage.
Any firm with these attributes will be excellently placed to deal with a rash of new hybrid structures.
Joe Truelove is a Chartered Accountant and a member of the Society of Trust and Estate Practitioners. He is the Vice Chairman of the Guernsey Investment Fund Association. His experience encompasses a wide variety of investment fund structures including open and closed ended, listed and unlisted funds invested into both liquid and illiquid assets as well as employment benefit trusts, international pension plans and assorted special purpose vehicles. He joined Carey Group in July 2013. Carey Group has been in existence for 45 years and provides support to a wide variety of structures for commercial, fund administration, private clients, family offices and pensions and benefits and was a founding member of the Channel Islands Stock Exchange.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.