Originally published in Corp INTL, July 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 avoided 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.
The current success of Guernsey's funds sector has been highlighted by the recently published www.funddomiciles.com Stability Index 2011. Guernsey was the highest placed jurisdiction to see improvement, moving up from sixth place in 2010 to third this year. This ranking underlines the general positive buzz and optimism that we are seeing around Guernsey's investment fund business at present. It is also interesting to see that the rankings are based on a combination of macroeconomic and fiscal data, as well as fund flow statistics.
Latest figures show that the total value of funds 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 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.
Alternative and Listed
The private equity and venture capital sector has seen particularly strong growth during the last year, reaching more than £70bn at the end of March 2011. The Island's reputation for excellence in this asset class has been reaffirmed by a Private Equity News / State Street survey where more than three-fifths (61%) of CFOs said that Guernsey was their preferred destination for private equity outsourcing.
A significant figure in the private equity industry is Guy Hands, Chairman of Terra Firma. As well as his private equity firm joining companies such as Permira by establishing an operation in Guernsey, Guy has also decided to live in the Island. This reflects the fact that Guernsey is not just an ideal jurisdiction for locating management companies but it is also attractive as a residence for the managers themselves.
In addition, Jon Moulton, Chairman of private equity firm Better Capital, gave a ringing endorsement of the Island's funds industry when speaking to more than 300 delegates at the Guernsey Funds Forum in London this May. Jon has a house in the Island and he has a Guernsey-domiciled investment company which is listed on the main market of the London Stock Exchange (LSE).
One of the Island's great attractions for establishing investment structures is the ability for Guernsey vehicles to list on the local Channel Islands Stock Exchange (CISX) – which has recently admitted its 4,000th security, Euronext Amsterdam or the LSE. Data from the LSE 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 (HKEx) has formally approved Guernsey as an acceptable overseas jurisdiction for the purpose of companies incorporated in the Island seeking to list on the exchange.
The International Stage
These are very positive developments for us in terms of doing business in the Asian markets. We have also been exploring opportunities in other 'emerging' economies, such as India and Russia. In both cases, there are already a number of examples of investment business in Guernsey but we are looking at ways in which this might be expanded.
However, the EU remains our principal source of new business and that is why it was so important that we engaged in the discussions regarding the Directive on Alternative Investment Fund Managers (AIFM). We have worked extremely hard to inform and educate the community in Brussels about our finance industry and in particular the funds sector. The resulting framework agreement not only provides some certainty but also places Guernsey in a good position going forward. There is still much work to do but we are confident that the outcome will be positive for the future of our funds industry.
Certainly our position has been reinforced by two reports published at the start of this year: The IMF commended Guernsey's high standards of financial regulation, supervision and stability along with our robust criminal justice framework to the extent that the Island scored the highest of any jurisdiction so far assessed; and the OECD built on its white listing of Guernsey at the earliest opportunity by endorsing the Island's commitment to tax transparency and exchange of information – we have now signed TIEAs with 23 other jurisdictions.
As you can see, there are a number of positives at play. There are many challenges ahead but we will take the necessary steps to ensure the ongoing success of our funds sector. For example, the 'Zero-10' corporate tax regimes of the Crown Dependencies have come under scrutiny. The Guernsey Government is undertaking a review, yet it is it has been clear that any future system must both compliant and competitive i.e. it will 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, 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.
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.