Fiona Le Poidevin, chief executive of Guernsey Finance, on why the Channel Island is home to many established private equity businesses.
As a jurisdiction, Guernsey has become synonymous with private equity. There are about 850 investment funds used for cross-border distribution around the world. The island is also home to a wealth of expertise and infrastructure that handles the structure, management and administration of private equity funds.
Apax, BC Partners, Mid-Europa, Permira and Terra Firma are some of the private equity firms that have established operations in Guernsey, which is a testament to the infrastructure available here. In addition, Ashmore, Better Capital, Cinven, Coller Capital, HarbourVest, Neuberger Berman and Pantheon utilise Guernsey investment structures. Investors and promoters are reassured by the position Guernsey has taken over the Alternative Investment Fund Managers Directive (AIFMD). Guernsey is not in the EU (or wider EEA) and therefore, as a third country, is not required to implement the AIFMD.
However, a large proportion of our funds business relates to Europe, while we also have a substantial amount of business that originates from outside Europe. As such, the island has put in place a dual regulatory regime, making it possible to continue to distribute funds into both European and non-European countries. Meanwhile, the existing regime remains for investors and managers who do not require an AIFMD fund, such as those using National Private Placement (NPP) regimes or marketing to non-EU investors. There is also an opt-in regime, which is fully AIFMD compliant.
Guernsey managers who want to access Europe continue to use NPP regimes, which are expected to remain until 2018. Using NPP will likely be favoured over AIFMD, which has stricter requirements.
The island still has an existing base of clients for whom Europe is an important market, and the opt-in equivalent regime, which has been in place since January 2014, will be appropriate for such funds.
For those with a growing non-European focus, it will be possible to place this business in parallel or feeder structures for which AIFMD compliance and the associated costs would not be required. Commercial decisions should dictate the most suitable approach.
Full passporting for non-EU alternative investment fund managers is expected from July 2015. If it comes in, managers will be able to market on a pan-European basis with a single authorisation. Guernsey's funds sector has enjoyed considerable growth in recent years, with total net asset value worth £266 billion in late 2013. In the same period, the net asset value of private equity funds under management and administration was more than £86 billion – up 6.2% over the course of the year.
Growth is aided by the ability of Guernsey entities to access a range of international stock exchanges in, among other places, London, Ireland, Australia, Toronto, Frankfurt, Hong Kong and the Channel Islands. In December 2013, Guernsey had more entities (115) listed on the London Stock Exchange than any other jurisdiction globally.
Guernsey has emerged as a leading centre for private equity, and, with its thirst for innovation and adherence to high standards, there is confidence that it will remain the premier European centre for such activity.
An original version of this article was published in the BVCA Journal, June 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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