Originally published in Investor Services Journal, Volume 5 No. 33
Writing in Investor Services Journal (ISJ) earlier this year I commented how Guernsey's funds industry was continuing its strong performance despite the changed global economic scene with the sub-prime crisis and its fallout. I was confident that the Island was well placed to continue in such a vain, although only time would tell.
Six months later and performance remains robust despite the difficult market conditions created by the credit crunch. The latest figures from the Guernsey Financial Services Commission (GFSC) show that overall funds business reached a record £207.2bn at the end of June – up £3.4bn (1.7%) over the second quarter of the year and up by £51.6bn (33.2%) from the same time in 2007.
Traditional funds remain well represented among our flows. However, the major growth continues to be in alternatives such as funds of hedge funds and particularly private equity, as well as more esoteric asset classes. This shift has included the emergence of new investment schemes such as distressed debt funds and distressed property funds and the indication is that the move to niche asset classes will continue during the credit crunch. Guernsey firms have responded by developing their capabilities to facilitate the more difficult administration of these funds – examples include the use of an off-Island centre of excellence within a large group or by establishing a specific operation outside the Island.
Today, world-renowned managers, for example, Investec and Dominion (retail), EQT and KKR (private equity); Kenmore and F&C (property); and Man and Fauchier (hedge funds/funds of hedge funds), have the operation of their funds facilitated in Guernsey. During the last year or so there has been the addition of BNP Paribas, Capita and Citco to the significant list of administrators in Guernsey, which already included boutique providers such as IAG and Bourse, as well as globally recognised names like Northern Trust, HSBC, Royal Bank of Canada and State Street that also offer custody services. The number of fund managers based on the Island is also expanding and now includes major private equity players Terra Firma and Permira, plus more recent arrival Odey Wealth. In addition, the Channel Islands Stock Exchange (CISX) has seen continued growth and now has more than 2,800 security listings.
While we are still seeing funds business coming into the Island, flows have slowed during the past few months. This reflects the fact that there is still a lot of international corporate wealth out there looking for a structure – and that is what we in Guernsey are so experienced and skilled at catering for – but there is a lack of confidence in the wider markets to put the business into place.
It is this fragile confidence that has slowed the growth of our funds business but in some respects this has been beneficial because it has given us all a chance to take stock. For example, industry practitioners have been able to make sure that service levels on the substantial business that has been taken in over the past few years are as high as possible.
In addition, it is an opportunity for time to be spent on initiatives which will build on recent developments such as our new 'fast track' registered funds regime, new company law and new company registry and introduction of a zero rate of corporate tax as standard. Now we are looking to establish a specific regime to attract hedge funds. On top of this we are talking with key decision makers in London about what else we might do to make ourselves even more attractive as a place to do business.
Guernsey Finance is also stepping up its promotional and marketing activities. In October we will be hosting the Guernsey Funds Forum in London – which is our principal source of business – and following this up with a private equity funds dinner debate in Edinburgh. We are also starting to refine our plans for targeting the Zurich/Geneva, US and Middle East markets in 2009. All of this is additional to further developing the jurisdiction's brand in China.
The right conclusion
It is this marketing and promotional activity alongside the continued development of attractive products and pragmatic regulation that is helping sustain new flows into the Island during the difficult market conditions while also ensuring we are ready to go when confidence returns and business levels increase.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com
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