Originally published in the Ipes Newsletter, June 2011.
Peter Niven, Chief Executive of Guernsey Finance, points to a series of positive factors at play which give rise to optimism for the future of the Island's funds industry.
The world was sent into shock by the global financial crisis and whilst Guernsey was not immune, the Island sheltered from its most severe effects. Guernsey's finance industry has proved extremely resolute and is rebounding well, led in no small part by the funds sector.
Indeed, the recently published www.FundDomiciles.com Stability Index 2011 shows that Guernsey was the highest placed jurisdiction to show the most improvement, with a move up from sixth place in 2010 to third this year. Luxembourg remains the most stable fund domicile, with Malta in second position. The FundDomiciles.Com rankings are based on a combination of macroeconomic and fiscal data, as well as fund flow statistics.
Latest figures show that the value of fund business in Guernsey reached a new record high of £263.6bn at the end of March 2011 – up 2.4% in the quarter and 33.6% year on year. This builds very positively on the exceptional increases during 2010 and by maintaining the upward trend the industry has now recorded seven consecutive quarters of growth.
In particular, Guernsey closed-ended funds continue to attract a lot of interest, especially from promoters in alternative and niche asset classes, such as aircraft, classic cars, dispute resolution and renewable energy.
The Island's private equity and venture capital sector has seen particularly strong growth to reach more than £70bn at the end of March 2011 and a survey published in Private Equity News earlier this year reported that 61% of CFOs chose Guernsey as their preferred destination for private equity outsourcing.
Guernsey's attractions lie in its depth of experience in private equity which locally has led to strong expertise and well established infrastructure. The Island offers modern corporate and partnership structures and a flexible regulatory process, including authorised and registered routes and a parallel 'fast track' QIF regime.
In addition, Guernsey vehicles can list on the local Channel Islands Stock Exchange (which recently admitted its 4,000th security), Euronext Amsterdam or the LSE. Data direct from the LSE to the end of December 2010, shows that there are more Guernsey-incorporated companies and securities listed on its markets than there are entities from any other competitor jurisdiction.
In addition, the Hong Kong Stock Exchange has just given the green light for Guernsey companies to list on the exchange. It builds on the fact that last year we signed a Memorandum of Understanding (MoU) with the Shanghai Financial Services Office and a Tax Information Exchange Agreement (TIEA) with the Chinese central government tax authorities. Hong Kong is well-recognised as an important gateway for inward and outward flows of capital to China and other financial centres in Asia. Guernsey is also beginning to explore opportunities in other 'emerging' markets, such as India and Russia.
However, the EU remains Guernsey's principal source of new business and that is why it was so important that the Island's authorities engaged in the discussions regarding the AIFM Directive. The framework agreement provides some certainty and also means Guernsey is well-placed going forward. There is still much work to do but there is confidence locally that the outcome will be positive for the future of Guernsey's funds industry.
The Island's position has been reinforced by the fact that earlier this year the IMF commended Guernsey's high standards of financial regulation and the OECD endorsed the Island's commitment to tax transparency and exchange of information.
There are still challenges ahead but the Guernsey authorities will take the necessary steps to ensure the ongoing success of the Island's funds sector. For example, the 'Zero-10' corporate tax regimes of the Crown Dependencies have come under scrutiny. However, while the Guernsey Government is undertaking a review of the Island's corporate tax regime, it has already made clear that any future system must retain the fund industry's exempt status. In addition, there will be no introduction of capital gains tax in Guernsey.
The Guernsey industry will keep its client base fully updated and indeed, the fact that more than 300 delegates attended the Guernsey Funds Forum in London this May shows how managers and advisers want to be up to speed with the latest news from the Island. That is why, in November, Guernsey Finance will be hosting a further seminar in London exploring new private equity-related developments, including a series of proposed amendments to Guernsey LP law and the introduction of the Guernsey LLP.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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