Julian Carey, Managing Director, International Administration Group (Hong Kong), assesses what Guernsey's investment fund administration capabilities can offer the Chinese marketplace.
The world's investment community has fixed its attention on China as the global engine for economic growth. In the alternative funds world there are broadly three very different fund types that provide potential opportunities for service providers based in Guernsey:
- Firstly there are the long only and hedge funds, usually open-ended investing into companies listed in Hong Kong, Shenzhen or Shanghai.
- Secondly, there are the private equity funds invested in privately-owned companies and state owned enterprises via closed-ended limited partnership structures. There are also hybrid mixtures of these two strategies, typically classified as pre IPO funds with a three year soft lock with limited redemption provisions.
- Thirdly there are the listed closed-ended funds usually invested in listed companies.
With these types of funds Guernsey can offer a huge amount of expertise within its fund administration, auditing and legal advisory service providers. Latest figures show that the value of funds under management and administration in Guernsey reached £257bn (US$410bn) at the end of December 2010. With decades of experience servicing alternative fund managers in London and the rest of Europe and the USA there is a pool of talent including experienced non executive directors to provide corporate governance and support to the boards of funds and the managers.
Guernsey also offers the ability to list structures on the local Channel Islands Stock Exchange (CISX) and also Euronext and the London Stock Exchange (LSE). Indeed, data from the LSE shows that there are comfortably more Guernsey entities listed on its markets than there are entities from any of our close competitor jurisdictions.
Guernsey has targeted the Asian market for future expansion and is looking to capitalize on the economic growth and evolution of the Asian investment environment. Guernsey has been presenting its services and expertise through the efforts of Guernsey Finance and the establishment of firms in the region which have strong island connections. Three years ago Guernsey established a representative office in Shanghai led by Wendy Weng and at the end of last year the Guernsey Government signed a Tax Information Exchange Agreement (TIEA) the State Administration of Taxation and a Memorandum of Understanding (MoU) with the Shanghai Municipal Financial Services Office.
Clients can benefit from the fact that even though a fund may be domiciled in another jurisdiction it can still be serviced from Guernsey using all the resources and capability of the Guernsey fund industry. Guernsey is also increasingly being seen as a jurisdiction of choice with a high standard of regulation, which was recognised and commended by the IMF at the start of this year. Guernsey was also within the first wave of territories placed on the OECD 'white list' and has early this year been endorsed by the OECD Global Forum for its ongoing commitment to tax transparency and exchange of information.
Guernsey service providers are used to establishing and administering offshore structures that may be advantageous to managers in the Far East in increasing their ability to raise capital and invest. Having good corporate governance is now vitally important whether it relates to a Hong Kong Special Purpose Vehicle (SPV) holding private equity investments in China or the parent fund and its manager domiciled in a tax-neutral jurisdiction. Investors now require strict corporate governance and Guernsey is well placed to provide the experience and regulatory structure to comply with these demands. Chinese managers are now realizing the importance of having substance to their structures to maintain the jurisdictional integrity of each entity within that structure.
Guernsey has an international influence, as far reaching as that of the great financial centres it has traditionally served. We have client managers and investors from all over the world and with the globalization of China's trade, its investment industry is sure to follow. The international reach of the island is immensely attractive both for investment out of China and for attracting a diverse range of investment and related expertise into China.
The regulatory environment is fast changing following the global financial crisis. We have the AIFMD in Europe and the Dodd-Frank legislation in the USA. For managers wanting to access these markets for both making investments and sourcing investors the world is an increasingly complicated and restrictive place. Guernsey is very well situated to take advantage of being a well regulated jurisdiction but outside of these regimes. As these new pieces of legislation are finalised it is vital that the island markets its advantages to the investment community around the world including the Far East.
China has continued to support change since the economic reforms of Deng Xiaoping in the 1980s. There is no reason to suggest that the pace of change will slow. The regulatory environment is moving fast and the initiatives undertaken by Shanghai, Beijing and Tianjin amongst other municipal authorities are very encouraging. Speculation about when the RMB will become freely convertible for investment purposes is ongoing and Guernsey continues to emphasize its qualities and advantages of expertise, flexibility, substance, internationalism and regulatory advantage to succeed in capitalizing on the potential possibilities of working with the second largest economy in the world.
Julian Carey has lived and worked in Hong Kong on and off for 23 years. He is a Guernsey man and has worked in Fund Administration with Credit Suisse and HSBC (formerly the Bank of Bermuda). He currently heads up the Hong Kong office of International Administration Group, a Guernsey-headquartered Fund Administrator with USD15bn in assets under administration across a wide range of alternative funds, including funds listed on various exchanges around the world, fund of funds, structured products, open-ended funds, private equity and real estate funds.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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