Originally published in RBCC Bulletin, March 2012
Fiona Le Poidevin, Deputy Chief Executive at Guernsey Finance, explores how Guernsey can offer financial solutions to meet the needs of companies and private clients, whether through private banking, wealth management or investment funds, listings and corporate structuring.
Russia is quickly developing, particularly economically and therefore is accumulating increasing amounts of private and corporate wealth.
As a result, many Russian individuals and organisations are now seeking to use 'offshore' structures.
Guernsey is rapidly becoming one of the popular choices to domicile such entities, particularly investment funds and trusts. In the last few years, there have been a significant number of companies and funds (with many listed on major stock exchanges) established in Guernsey as vehicles for investing into Russia. Many of these are private equity related, which is a specialist and growing area for the Island.
Guernsey has become even more attractive for establishing fund structures since we extended our tax exempt regime for collective investment schemes. Another attraction of Guernsey is the fact that our regulator has built a reputation for being robust yet pragmatic and has welcomed established Russian businesses such as Renaissance and VTB Capital to the Island.
Russian firms have chosen Guernsey precisely because of our reputation as a well-regulated, cooperative and transparent international finance centre. This thinking is a growing trend in Russia and as this evolves then doing business with Guernsey becomes an even better fit.
The Russia-Guernsey combination
Guernsey's unique environment (see footer) has attracted several hundred financial services firms so that the Island's finance industry comprises a balanced range of providers, broadly comprising:
- Investment funds
- Asset management and stockbroking
- Fiduciary services (trust and company administration)
- Professional support services, such as multi-jurisdictional law firms and the 'big four' accountancy firms,
as well as:
- the Channel Islands Stock Exchange (CISX)
- a Guernsey Registry for company incorporation and Intellectual Property (IP) and
- a bespoke professional development facility, the GTA University Centre.
These providers work within the regime of an independent regulator, the Guernsey Financial Services Commission (GFSC). Guernsey Finance is the promotional agency for the Island's finance industry internationally. We work closely with the sector associations and also specifically-orientated organisations such as the Guernsey Russian and Eastern European Financial Forum (GREEFF).
Representatives from this group were part of the delegation to Moscow last year to speak face-to-face with existing contacts and develop new leads. These meetings reinforced our thoughts about how the region's development means there is considerable potential for servicing the financial needs of private and corporate clients.
Our visit indicated that there are three principal areas where Guernsey can offer services to clients with Russian-related business: overseas investment into Russia via 'offshore' fund vehicles; Russian institutions seeking an overseas structure for investment back into Russia; and the allocation of Russian wealth outside of Russia.
The allocation of Russian wealth outside of Russia>
A number of high net worth individuals in Russia use 'offshore' trusts, foundations or other structures as asset protection but there remains significant potential for increased investment in non-Russian products, such as Guernsey-domiciled funds.
Russian institutions seeking overseas structures for investment back into Russia
Many successful Russian businesses are now looking to source further investment from overseas. Guernsey can offer a stable environment for structuring tax efficient vehicles which can be listed on a variety of exchanges providing for inward investment into these Russian institutions from the European capital markets.
Overseas investment into Russia via 'offshore' fund vehicles
'Offshore' fund vehicles can be established to provide overseas investment into Russia. These are often driven by the will of overseas investors but tend to be most successful where the manager has a presence in Russia and therefore a familiarity with the business environment. Guernsey is already home to several successful examples of such structures:
- Renaissance Russia Infrastructure Equities Limited is a Guernsey domiciled investment company. It has been established as a registered closed-ended collective investment scheme regulated by the GFSC. From July 2011, it has been listed on the main market of the London Stock Exchange and it had a market capitalisation of US$98.8 million at the end of December 2011. It is seeking to achieve medium-term capital appreciation by investment to equity and equity-related securities of companies involved in the infrastructure sector and whose principal operations or assets are located in Russia and the CIS Region. For more information visit http://www.renasset.com/
- Baring Vostok Capital Partners is one of the leading private equity firms operating in Russia and the CIS. The Baring Vostok Private Equity Funds include the Guernsey authorised closed-ended investment scheme, Baring Vostok Private Equity Fund IV. This was raised in February 2007 with total committed capital of US$1.1bn and at that time was the largest private equity fund in Central and Eastern Europe. For more information visit www.bvcp.ru/en
- PPF Partners Limited is a Guernsey-based private equity firm investing in Emerging Europe. The company believes there is significant value to be unlocked in companies throughout Central and Eastern Europe and the former CIS countries. The fund is represented by the Guernsey-domiciled PPF Partners 1 GP Limited, as the General Partner, and is managed by PPF Partners Limited from its Guernsey office. For more information visit www.ppfpartners.com
- Raven Russia Limited is a Guernsey registered property investment company specialising in commercial real estate in Russia. The ordinary share and warrants of the company are listed on the Main Market of the London Stock Exchange (LSE), with the preference shares of the Company trading on the Alternative Investment Market (AIM). The basic group structure includes the Guernsey investment company, a Cyprus holding company and a Russian subsidiary holding the underlying investments. For more information visit www.ravenrussia.com
Other examples of managers with Guernsey domiciled funds investing into Russia include Ashmore Investment Management and Prosperity Capital Management. VTB Capital has also established an entity in Guernsey. Speaking to these sorts of players, we hear that they are attracted by Guernsey's political and economic stability, experience in the investment fund sector and in particular, the fact that we are considered a well regulated, cooperative and transparent international finance centre.
Indeed, during the last few years, the IMF has commended our high standards of regulation, we were placed on the OECD/G20 'white list', the OECD's Global Forum has endorsed our ongoing commitment to meeting international standards of tax transparency and exchange of information and the Financial Stability Board (FSB) has recognised that the Island can demonstrate strong commitment to financial stability.
Russian firms are also drawn to using Guernsey because our vehicles can list on a wide range of exchanges, including the LSE and Euronext Amsterdam, among others, as well as the local CISX (which now has more than 4,300 securities listed). 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.
Guernsey is also able to provide an attractive fiscal regime for funds. The Island is undertaking a review of its 'Zero-10' corporate tax regime but the politicians have already made it clear that the zero product and tax neutrality for Guernsey's international client base will remain, irrespective of the outcome of the review. The exempt regime for the funds industry is not affected by the review, i.e. collective investment schemes remain exempt from Guernsey taxation. In fact, the exempt regime is set to be modernised so that this status will apply to any body forming part of the structure under which the scheme as a whole operates.
The right conclusion
Guernsey is committed to providing an environment that is attractive for Russian individuals and organisations who are seeking to use 'offshore' structures. There are already numerous successful examples but we will speaking to more advisers both in Moscow – where I am leading a team from Guernsey at the end of February – and other centres such as London, to see how we might grow this perfect combination in the future.
Guernsey: In Brief
- Situated in Europe between the United Kingdom (UK) and France.
- A British Crown Dependency
- A special relationship with the European Union (EU)
- English speaking
- Currency: British pound Sterling (GBP)
- Same time zone as the UK
- Links to both London and Europe
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.