The Guernsey investment fund industry is in a constant state of evolution to stay fresh and keeps reinventing itself to remain attractive.
Evolving asset classes
Regulatory changes within the UK and EU have made Guernsey less popular for the open ended retail investment structures of the past. That's not to say that open ended structures are no longer relevant to Guernsey or the institutional market our funds industry serves.
In particular the recent Memorandum of Understanding signed between Guernsey and Switzerland may extend the appeal of our open ended funds, which Swiss managers have traditionally used. The Non Guernsey scheme rules also enable local service providers to manage, administer or act as custodian to Non Guernsey schemes, and these too are open ended schemes.
Private, closed ended fund structures especially those invested in private equity have gradually become the dominant force in the Guernsey domiciled investment fund universe. Within this world however there is diversity. Not only do we see funds investing in private equity but also private debt and real estate. Guernsey is home to a number of innovative structures which invest into infrastructure, clean technology, aircraft, shipping, student accommodation, distressed debt and renewable energy assets.
The listed investment fund sector has long been the jewel in Guernsey's crown and in 2013 this success was reinforced with an additional twelve such funds selecting Guernsey, while four chose the UK, four chose a close neighbour and one a more distant competitor jurisdiction. Guernsey is also an excellent domicile for listed trading companies and this is an area where we can improve our market share.
Expanding range of services
Many of our larger administrators have expanded into the world of provision of depositary services. This in effect represents an additional income stream from those existing clients who aim to be compliant with the new EU Alternative Investment Fund Managers Directive. Despite the well documented acquisitions of Guernsey service providers we are also witnessing new entrants to the Guernsey market and not a wholesale consolidation.
There have also been a number of new managers coming to the island, who are increasingly looking to establish a permanent presence on the island including office space, employees as well as local directors. Compliance and risk management is another growth area and specialist service providers have become established to support both existing businesses and new ones on an outsourced basis.
Increased focus on corporate governance has led to a new generation of highly qualified and experienced individuals becoming non-executive directors. There are even firms and individuals specialising in acting as personal assistants to non-executive directors.
Current market conditions
The listed funds market is a window into the broader investment funds world as the information is public and widely disseminated. The volume of Initial Public Offerings (IPOs) has increased and this normally signals market confidence and stability. Discounts to net asset value are at historic lows and there is a strong demand for income generating asset classes. Many new entities are listing on the London Stock Exchange and other markets like AIM although relatively few so far this year are investment funds. The listed investment funds, already in existence are however raising additional capital through secondary issues. For private equity managers the benefit of a strong market is the possibility of floating a portfolio company rather than selling to a trade buyer or to another private equity house.
In Guernsey competition amongst service providers remains fierce which is good for our clients who are typically receiving high levels of service at cost effective prices. It is possible to hire good quality staff locally, often with relevant experience and transferable skills. Our regulator, the Guernsey Financial Services Commission, has been a key selling point for our jurisdiction for many years and the clear regulatory framework within which we operate and guaranteed turnaround times for certain regulatory approvals leaves many other competing jurisdictions in the shade. Our promotional body Guernsey Finance continues to perform sterling work raising the profile of Guernsey internationally while enhancing the island's reputation.
What could possibly go wrong?
We have survived the economic downturn and we have braved the regulatory backlash that followed. We have adapted and we have emerged stronger, leaner and fitter than before. The game has however changed irrevocably and the greatest risk we face is that we become complacent. The pace of change has not slowed, the requirements of our clients have increased and the burden of regulatory compliance will not reduce. The only response is to continue to seek out new markets, identify new opportunities, work smarter and move faster than the competition. Our response to the challenge we face is, "Bring it on!"
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