Vignesh Vijayakumar, senior manager of corporate and institutional services at RBC Wealth Management, discusses the main trends in the funds industry in Guernsey.
HFMWeek (HFM): What are the main trends you are currently seeing in the market in Guernsey?
Vignesh Vijayakumar (VV): We generally see a positive uptrend in the private equity sector, but an interesting shift of late has been the appetite for separate managed account structures. Investors who are contemplating establishing these managed account structures are normally looking to deploy substantial commitments to asset managers and accordingly these are highly customised based on the individual requirements. While we see that fund raising in general has been quite challenging, those asset managers with an established track record are able to successfully launch funds with a much shorter lead time. Despite this, it is imperative that the asset managers allow themselves plenty of time, given that investors are placing a greater emphasis on due diligence matters. Another interesting trend we are seeing at the moment is funds raised to invest in a specific investment, which could be in both a traditional private equity strategy as well as in the real estate/infrastructure segment.
HFM: What sort of activity has Guernsey seen recently in the private equity segment?
VV: We have seen interest returning in all the major private equity strategies, with appetite slowly returning to the buy out market. We are also seeing increased interest in credit funds, and some asset managers have moved from a blind pool capital approach to operating on a deal-by-deal basis due to investor preference.
HFM: What makes Guernsey's private equity market an attractive location to asset managers?
VV: Guernsey has a very well-established regulatory framework which demonstrates a good mix of flexibility and pragmatism. It boasts a highly-regarded financial regime that has attracted asset managers and investors across the globe looking to build on their existing fund relationships. Asset managers are particularly appreciative of the fast track regulatory options available in Guernsey.
HFM: What services does RBC offer to private equity funds in Guernsey?
VV: We provide a full suite of services necessary for asset managers looking to establish fund structures in Guernsey. Most private equity fund structures are established as closed-ended limited partnerships with a Guernsey company acting as the general partner. There are also carried interest and co-investment structures oft en included in the relationship.
Our services include administration and fiduciary services to the fund, general partner and the related carried interest structures along with custody and banking services necessary to fund structures. We offer a highly customised approach and work with all types of asset managers - be it a start-up manager or an established asset manager raising their follow-on funds - and can assist right from the inception stage working with the legal advisers and other key stakeholders.
Aside from the core fund administration service, our institutional reach means that we are able to provide more value-added services such as bridge financing options, wealth management solutions to the key investment professionals and other stakeholders with the asset manager, and also custody options when the portfolio companies decide to go for a listing. We work closely with colleagues in our capital markets division to fully leverage this institutional reach in order to provide the best value-added service to our clients.
HFM: What are the main trends you see in the administration sector in Guernsey?
VV: Private equity fund administration has always been a highly customised service offering for us and increasingly each client adopts a slightly different approach either with the fund structures, economic terms or investor reporting with more tailored capital account statements etc. Though managers have generally adopted the EVCA reporting guidelines, we are seeing many managers now considering some of the ILPA guidelines towards reporting. It is important that service providers are well-equipped to handle more complex fund structures and flexible reporting requirements for the asset managers. We are also seeing an increasing number of side letters with investors and often many of the side letter terms provide for an enhanced reporting frequency or additional information. We assist the asset managers in meeting the requirements and ensure that the fund complies with the obligations assumed in the side letters.
HFM: What are the typical challenges faced by fund managers when establishing a private equity fund?
VV: Be it a start-up asset manager or an asset manager with a track record, it is beneficial to engage key service providers from a very early stage of the discussions. It is important to discuss with the legal advisers establishing a well thought out fund structure with carried interest, co-investment and holding companies for the relevant investments. It is also important to consider the target investor market and adequately provide for any feeder structures, if necessary.
Aside from the structure aspect, there are challenges relating to the economic terms and particularly investors requesting preferential fee arrangements for seed capital. Investors are also often quite keen to understand the deal flow of the asset managers and seem to focus both on the investment and operational due diligence aspect prior to committing.
HFM: How does RBC help asset managers meet the requirements of the changing regulations such as FATCA and the AIFMD?
VV: There have been lots of regulatory changes within the asset management industry. We follow regulatory updates closely and work with legal advisers in all the jurisdictions to ensure that we remain well-positioned to assist our clients in meeting the relevant obligations. Our clients often look to us to guide them through the ever-changing regulatory landscape and being part of a larger institution puts us in a favourable position in having these conversations. We have dedicated teams looking at the regulatory changes and receive frequent updates about how the changes impact the industry.
HFM: What are your predictions for the market in Guernsey over the next year?
VV: Guernsey has always been an attractive domicile and this will continue to be the case. Private equity and real estate structures are quite popular and we anticipate increasing activity levels in the market. Guernsey's robust regulatory regime will continue to remain attractive for asset managers.
An original version of this article appeared in the HFMWeek Guernsey Report 2014, May 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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