Originally published in HFM Week Guernsey Supplement, May 2007
Ever-changing, forward-thinking legislation and increasingly straightforward regulation, is making it simpler and easier to establish new funds in Guernsey. The introduction of the PCC concept, the success of the Qualifying Investor Funds and the Harwood Report provide adequate illustrations of this in recent years.
The rationale of the Guernsey Financial Services Commission (GFSC) is obvious – make it quick, make it easy and more fund business will be attracted to Guernsey. The manner in which it has been achieved has also been important because they have done it through close interaction and dialogue with the fund industry thereby ensuring that everyone is onside.
The figures speak for themselves and the GFSC reported funds under management and administration for 2006 of £130.2 billion, a year-end record high, which was an increase over the year of 30.2%. Also of interest though, is that non-Guernsey schemes, for which some aspect of Guernsey administration or management only was provided, also reached a new record high of £25.1billion, representing an increase over the year of 21.2%.
These figures reflect an important, and perhaps unexpected, spin-off from the continual, dynamic changes – they have encouraged the evolution of the boutique fund administrator.
Boutiques have always been around, but the intense and rapid changes to the regulatory environment in recent years, together with the high costs of compliance and corporate governance, priced them out of the market. Arguably, there was a period of consolidation in the market that saw the boutiques swallowed by the larger corporations, while the industry took stock of the impact of the legislative and regulatory changes.
However, several years on, the constructive manner in which the regulatory authorities have managed to relax the rules, whilst crucially maintaining their robustness and efficacy, has encouraged the re-emergence of the boutique administrator as the entrepreneurs within the industry see and seize the opportunity.
So, what does the boutique fund administrator offer that the large institution does not?
Primarily, a boutique such as ourselves at Louvre Fund Management, offer a friendly, hand-holding service. We are not a provider of custody, banking or the legal work. Instead the boutique offers a closer relationship and a single point of contact with a specialist administrator. They, in turn, will work with the manager and the advisors to the fund or recommend appropriate service providers in Guernsey.
In doing this they offer choice and take on a crucial co-ordination role.
The boutique is also an advantage to the smaller, perhaps less experienced fund manager. Larger, more experienced institutions go straight to the large Guernsey institutions because they require the full suite of services for a large fund. They will be looking for custodial, legal, banking and accounting services as a one-stop, often fee negotiable, package.
Whereas the smaller manager may require an initial consultancy process during which the more personal boutique, such as Louvre, can guide the manager through the options available for their needs. Maybe they need a cell in a PCC, perhaps they need to follow the QIF route or establish a Limited Partnership, whatever the requirement boutiques such as Louvre coordinate, advise and follow the process through to the establishment of the fund.
What follows from the boutique is the provision of a bespoke and personal administration service meeting the precise needs of the manager, whether a specialist fund manager, or the manager who has all of the other services on tap already and simply needs administration of the fund to be demonstrably in Guernsey.
The importance of this last point cannot be over emphasised, particularly for many UK and European fund managers who have suffered increased scrutiny from their regulators in recent years. The principal reason for this is the taxation perspective.
The UK revenue has included the offshore funds sector as part of their ‘special arrangements’ initiative and investigations and their focus is on identifying the ‘true’ jurisdiction of management and control. Clearly, they are hoping to show that the fund is UK resident and therefore liable to tax there!
Using a boutique that can offer qualified and knowledgeable non-executive directors to the board and, importantly, hold regular and frequent board meetings to demonstrate administrative knowledge and control is crucial. They will also be closer to the manager and have a greater depth of understanding of the underlying business. In short, they will be more involved.
From a general point of view, it is also worth highlighting the enviable and close position of Guernsey to the UK and Europe that allows non-Guernsey based directors easy access to the island for the purpose of regular board meetings.
The rise in Guernsey of the small specialist boutique administrator and manager reflects the success of Guernsey’s fund industry. They are a response to the needs of the growing number of alternative fund managers and they reflect the depth of experience and expertise that is available within the island and the maturity of the industry as a whole.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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