Guernsey: Fund Structuring Expertise

Last Updated: 4 August 2010
Article by Sean Cheong

Most Read Contributor in Guernsey, September 2018

This article was originally published in Corporate INTL, July 2010

Guernsey's success as a key player in the international funds industry has been, in part, due to its flexibility and willingness to adapt to the pressures facing fund managers and to find ways to help them to succeed.

The island has a particular specialism in alternative investment funds such as private equity and real estate funds and has developed a funds regime to suit the fast-moving, high pressured environment that fund managers operate in.

The introduction of the self-certifying Qualifying Investor Fund (QIF) process was an important development for Guernsey as it significantly reduces the Guernsey Financial Services Commission (GFSC) authorisation time frame from about six weeks to three working days or less.

Collas Day is a prominent law firm in Guernsey with experience of establishing QIFs for clients. Sean Cheong from Collas Day, recently set up an authorised, closed-ended qualifying investor fund that proved highly effective for the client in question and believes the regime gives Guernsey an advantage over competitors.

She said, "Guernsey's QIF regime offers speed and certainty with a badge of bluechip regulation for those promoters who have established track records. Similarly speedy fund processing regimes in, for example, certain Caribbean jurisdictions generally result in unregulated funds, which we are acutely conscious do not always meet investors' expectations in the current times. Guernsey has been able to achieve a very fine balance between speed of authorisation and quality of regulation which has so far eluded many other jurisdictions."

Private equity

The private equity industry has found Guernsey's approach particularly useful and many of the leading funds in the City have developed a close relationship with the Island's professionals.

Collas Day says that well known funds such as EQT, Partners Group, Permira and Terra Firma have all launched funds in Guernsey and located part of their operations there. Part of the attraction appears to be a skilled and experienced workforce as well as flexible regulation.

Ms Cheong added, "Guernsey funds are promoted by leading institutions worldwide in more than 38 countries. As a result of this, Guernsey has a highly skilled array of service providers to the fund industry, including industry leading administrators, custodians, investment managers, auditors, tax and legal advisers. This reputation has meant that more private equity firms are interested in coming to Guernsey. Recent high-profile announcements of moves of other managers (including BlueCrest Capital and Shore Capital) have also confirmed Guernsey's attractiveness as a place for funds business."

An important consideration for private equity funds, besides a flexible fund vehicle, is the ability to segregate assets and liabilities within the overarching structure. Guernsey was one of the first jurisdictions to introduce the protected cell company structures (PCC) that have since become popular across the world.

A PCC is afforded statutory protection in the ring-fencing of assets and liabilities of individual cells from those of other cells and the PCC itself. They are also, on the whole, more cost-effective to set up and operate compared with funds which are set up as single entities.

Listing Funds

There is an increasing demand for listed funds, particularly by investors who deem the extra layer of regulation and oversight provided by the exchange itself as important. Certain institutional investors also need to carry a percentage of listed funds in their portfolio as opposed to private ones. Fund promoters also believe there is an advantage in listing a fund because it creates more exposure to potential investors and can provide some liquidity.

Collas Day is able, through one of its group companies, to provide sponsorship of a fund seeking to list on the CISX. Its lawyers can also assist with listings on LSE, AIM and Euronext by providing legal expertise and working in conjunction with lawyers in the jurisdictions concerned.

Ms Cheong says that a listing on any of these exchanges or markets invariably provides investors with greater comfort, and in some cases greater liquidity and market exposure in another jurisdiction.

She adds, "A listing on the Channel Islands Stock Exchange (CISX) based in Guernsey, which is a recognised exchange for the purposes by HM Revenue & Customs under the UK Income and Corporation Taxes Act 1988, has the added advantage of being attractive to ISAs, PEPs and SIPPs."

AIFM Directive

The AIFM Directive is a source of considerable interest for Guernsey, not least because of the protectionist threat coming from Europe. There is potential for the introduction of an equivalency status that would require all jurisdictions outside the EU (including the Channel Islands) to prove their regulatory robustness before being allowed to host alternative funds doing business inside the EU.

Collas Day is very confident that Guernsey will be able to meet the requirements of the AIFM directive and won't suffer any negative consequences from its implementation.

"While the various legislative bodies in Europe still debate the final form of the directive it is clear that, however worded, the directive will present a challenge to the funds industry across many jurisdictions, not just Guernsey. Obviously, until the third country provisions are finalised, we cannot comment specifically on its impact.

However we are confident that, with the framework of regulation already in place and soon to be put in place in Guernsey, that we should be able to meet any requirements of equivalency without too much difficulty."

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.

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