Guernsey is London's closest offshore finance centre. With '2-REG', its recently established aircraft registry, aircraft can now be registered for both commercial and private flights. So, what makes Guernsey's trust industry so attractive? Here, Concept Group Director Marianne Domaille, amongst others, provides some explanation.
The weather, currency and its residents are distinctly British although Guernsey is not part of the UK or Europe. The main industry is finance and the island is a popular jurisdiction for high net worth families to place their wealth in the safe hands of one of the many sophisticated, secure and well-regulated trustee and family office firms.
"I dived straight into the trust industry in Guernsey after leaving full time education in 2001," explains Marianne Domaille of Concept Group, an independent provider of innovative offshore financial solutions.
"One of the reasons that I love being a trustee is the sheer diversity of the families, cultures and asset classes that we are privileged to be exposed to. It is unpredictable and an extremely rewarding career if you enjoy a generous dose of fast paced excitement."
The recently established 2-REG aircraft registry has generated significant interest worldwide, including Asia and in particular China, which has one of the fastest growing business jet markets.
"A well-publicised client of ours is the HNA Group, who through its subsidiaries Deer Jet and Hongkong Jet, has partnered up with us to maintain a Guernsey AOC for a fleet of luxury jets, starting with 2-DEER, a 787 Dreamliner and currently the world's most expensive business jet," says Domaille.
Last September, another corporate Boeing 727 aircraft, 2-BASG, was added to BAS Guernsey (BASG) air operator certificate (AOC) and can now be offered for commercial charter. Hongkong Jet and BASG Chief Executive Denzil White said the Guernsey registry was very responsive and showed very high standards.
"Response times are critical to us as a business. When we were looking at registering the 787 in Hong Kong, we were told it would take 15 months. Guernsey did it in three days," said White.
"In addition to managing modern day business jets, as a commercial trustee, we are often involved in general aviation business such as setting up structures to buy aircraft, dismantle them and sell off the individual components," comments Domaille
"In fact, earlier this year I visited Mr Wolter Portier, a prospective client starting up such a business in Eindhoven and as a hobby, it transpired that he also owns and maintains vintage aircraft including a Spitfire, all of which are somehow still airworthy. These aircraft come with their own challenges, notwithstanding that they are constructed largely from linen and are kept in a secure Dutch Royal Airforce airbase facility," confides Marianne.
A tough nut to crack
For the Guernsey trust industry, the Asian market is a massive growth sector, albeit a difficult nut to crack.
"They are still learning about the Western culture of financial service business regulation and our requirement to obtain due diligence," says Domaille.
"If those obstacles can be overcome then Guernsey comes into its own in terms of its sophisticated asset holding solutions and to being unfazed with the Chinese's insatiable appetite for buying high value goods in volume. In recent weeks I met a Taiwanese private client in Shanghai who is setting up a trust and family office with us in Guernsey, having also successfully established a Guernsey captive insurance structure for a film financing venture. We attended ABACE and EBACE, to discuss investing in private jets and then we travelled to London to visit the Aktis Gallery. The gallery is directed by Anna Chalova who I have worked with for over a decade and specialises in artists living in Paris in the 1950s such as Zao Wou-Ki and Wang Keping. These are two strong names in the Asian art scene and my client had to resist the urge to buy up the entire display there and then. We visited Masterpiece together in July with a view to completing a number purchases and identifying additional potential works for his collection."
For a trustee, it is essential to have a good relationship with a reputable family lawyer who has experience of unique assets such as art.
"Often those items which you may perceive as ugly, or wouldn't give houseroom, are the most valuable. I would recommend Grosvenor Law in London who specialise in high profile divorce cases. They recognise that some spouses see this as an ideal opportunity to offload art they don't like or value onto the other spouse."
Sally Marsden of Grosvenor Law advises: "It is a fruitful ground for disputes as value is very subjective and art and collectibles are only worth something if someone is willing to pay for it. Warring spouses are often left with one side arguing the value down and the other side arguing the value up. We have also seen cases where parties haven't really appreciated the value of the art or a collectible as an asset, with some people not even bothering to list items in these categories.
"As a general rule, owners should ensure they keep all paperwork in relation to purchase and value at purchase and also track the value. Watches are a popular collectible, some men collect watches like women collect earrings. Values increase with original packaging and warranties, so people need to understand the importance of keeping all that. Books and stamps are also making a big comeback in terms of collectibles and again are often overlooked."
Being surrounded by the sea, Guernsey has a very established marine offering and it is a common part of life as a trustee to manage trust structures that own superyachts.
"I work closely with yacht managers such as Chris Dawson of Master Yachts to ensure that a family's expectations are met in terms of customising the superyacht, organising for crew, catering, and logistics. As with private jets, safety is of paramount importance. Sometimes it can be a challenge to meet the demands of a family where the two conflict.
"Yachts are fantastic for providing discrete downtime for their owners and family in comfortable surroundings. The contrast of being on the water, in new and interesting environments allows them to disconnect from their everyday lives and fully relax.
"Asia is a growth area for superyachts, just like with art and aviation, but it is unlike the rest of yachting ownership as the Asians have a different view of how these assets are used. First generation beneficial owners can see the use of the yacht for business entertaining but don´t really understand its use for holidays. The second generation are different, yhey have been brought up in Europe or America and are used to holidays and relaxation time. This second generation wealth will be the big driver of the Asian superyacht market in the coming years.
"Russians on the other hand, are experts in superyacht ownership and to using Guernsey trust structures such as private trust companies to hold them through. It's a highly sought after status symbol to have at least a 65metre vessel, although 85 metres and upwards are now seen to be the new 'acceptable' length. However, the waiting list for yacht construction in some shipyards, such as Lürssen can be in excess of five years and this has generated an over-inflated secondary market for vessels under 18 months old. I work with a number of banks providing yacht financing and one bank in Monaco has a lending book with a client base which is 100% Russian. Nonetheless, despite this being a regular transaction and client type for the bank, the conditions precedent and subsequent can take months of negotiating and it's our job as trustee to manage the dynamics between the family, the ship builder, the bank and the yacht manager, which is a minefield. It is not unusual for the bank to ask for 400% security either on some of these vessels, so the trustee really has to be prepared to scrape the barrel and cross collateralise using assets from other structures under the family trust umbrella such as property, private equity and investment portfolios.
"Sometimes owners combine other passions with their yachts, perhaps by bringing much loved pieces of art with them when they go on board or by maintaining a healthy stock of vintage wines to enjoy with their guests over exquisite dinners. As a platform to fulfil a person's desires yachts are hard to compete with. Classic cars, helicopters and submarines are all regularly incorporated into the design of these amazing vessels."
Trust industry development
It will be interesting to see how the trust industry develops over the next five to ten years.
"Traditional luxury assets such as art, yachts and jets will probably still be a large feature of the assets that we look after," concludes Domaille. But, she adds: "With second generation wealth pushing through from the Middle East, Far East and Russia, I predict that a trend towards luxury technology based products such as smart devices will emerge and that crypto-currencies will be used more widely."
An original version of this article was first published by Altitudes Magazine, November 2017.
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.