Originally published in HFM Week, Guernsey Special Report, June 2010
Kevin Gilligan of Louvre Fund Management Limited reveals why Guernsey's established regulatory framework and proven track record mean the island will continue to surpass hedge fund managers' and investors' needs.
Guernsey has a successful and stable infrastructure which provides a solid platform for a well-regulated fund industry. While robust regulation is paramount, the approach taken by the Guernsey Financial Services Commission is one that is pragmatic and open to innovation, and it is these strengths which are increasingly recognised by hedge fund mangers globally.
Guernsey's approach to regulation, in the face of the economic crisis, has evidently become one of its strengths. In recent years the regulator introduced a fast-track option for both open-ended and closed-ended funds and their associated management entities.
However, what Guernsey was careful to avoid, and which now works in its favour as a result of the heightened demand for regulation, is to go down the unregulated route, which could be considered a dangerous path for any domicile to currently walk.
"What Guernsey has not done is go down the completely unregulated route," says Kevin Gilligan of Louvre Fund Management Limited. "I think, as a jurisdiction, we recognise regulation, transparency and the protection of investors as key ingredients for a well-run fund industry and in the current climate these are exactly the criteria that managers and investors alike are looking for when considering a new home for their funds or when making an investment decision."
Guernsey will become more attractive as a hedge fund industry because of its proven track record and established regulatory framework. A proactive approach over the past decade has meant wholesale changes are not required to react to the current regulatory demands facing the hedge fund industry. It certainly will not rest on its laurels but will continue to build on solid foundations, a position some other jurisdictions will now need to work towards.
Kevin Gilligan, of Louvre Fund Management Limited, is proud of Guernsey's many strengths, and notes how these play a key role in the development of Louvre itself, as a niche fund administrator. "From our perspective, one of the things that sets us apart is that we are very entrepreneurial in our approach to funds," he says of Louvre. "Whereas a lot of administrators traditionally deal only with a specific asset class, Louvre administer a diverse range of fund structures and strategies including hedge funds, private equity funds and property funds. A complete suite of fund options are available to fund promoters in Guernsey and at Louvre we run an even split of open-ended and closed-ended funds including the highly regulated Class A schemes at one end of the spectrum down to the fast-tracked registered funds at the other."
Guernsey performed robustly in 2008 and 2009, and it appears to be heading into 2010 with a cautious sense of optimism too.
"Its robust regulatory structure and environment means that it is more than holding its own in comparison to other jurisdictions," says Gilligan. "We are seeing an influx of hedge fund enquiries from fund promoters who previously had funds in the Caribbean. We are also seeing an increasing trend of existing funds migrating to Guernsey from more traditional hedge fund jurisdictions such as the British Virgin Islands (BVI) and the Cayman Islands."
He adds: "This year we have migrated a commodities fund from the BVI to Guernsey which will shortly be followed by an FX fund from the same jurisdiction. We have migrated a Cayman-based manager to Guernsey and it is likely that the funds will follow the manager to Guernsey later this year. These are existing clients and what has been interesting, having worked with them for a number of years, is to see that what is really important for them now is a jurisdiction with a firm yet workable regulatory environment, which is not only crucial for them but also their investors."
Hedge funds have been criticised for their lack of transparency and questions raised regarding the independence of the associated service providers. It has been a common model for the manager to also control all administrative duties including the calculation of the ne t asset value. Investors have grown evermore wary of such arrangements, putting increasing importance on the independence of the administrator in relation to the manager and in some cases also in relation to the custodian.
Guernsey is well placed to meet the growing expectations of investors. All Guernsey funds are required to appoint a Guernsey-domiciled administrator and all open-ended funds must also appoint a Guernsey custodian. In the case of a Class A scheme, the custodian must also be independent from the administrator. The custodian has an oversight responsibility in terms of the duties performed by the administrator, which includes regular on-site visits to check appropriate systems and controls are in place.
The Louvre Group
Louvre Fund Management Limited is a niche, independent fund administrator, which sees a solid, regular inflow of enquiries for funds in the area of £50-100 million. From the fund administration perspective, Louvre covers other areas, such as BVI, the Cayman Islands and Dubai.
However, in terms of current business, nearly 100% of new fund launches are coming out of Guernsey. This clearly demonstrates Guernsey's popularity as both a jurisdiction for funds in its own right and also for the administration of international funds.
The Louvre Group's head office is in Guernsey, which constitutes the jurisdiction where the company was born. With offices in the Cayman Islands, Dubai, Geneva, Guernsey, Hong Kong and London, the Louvre Group offers international fund establishment and administration from Guernsey and its office in Dubai together with trust, fiduciary and corporate administration from Guernsey, Geneva and Hong Kong.
Its offices in Guernsey and Hong Kong also specialise in providing qualifying recognised overseas pension schemes (QROPS) and qualifying non-UK pension schemes (QNUPS), which have become increasingly popular for UK expatriates as well as people who have lived in the UK, returned to their home country and have amassed UK pensions.
The company's London office provides on-shore trust services together with SIPP pensions, will writing and UK probate. "Guernsey has always been the central jurisdiction," says Gilligan. "It is a forward thinking and stable jurisdiction, and for this very reason it is the heart of the Louvre Group, and from here onwards we look at the varying strategic jurisdictions that may be available.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com
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