Originally published in MENA Fund Manager, September 2010
Frances Watson, of Ogier, highlights the opportunities available in Guernsey for investors in the Mena region.
As the global economy shows signs of recovery, renewed interest in the funds industry is tangible as investors seek higher returns.
For Mena funds (funds, that invest into the Mena region and/or which target Mena investors), the choice of domicile remains varied. Although less well known than a number of its competitors, Guernsey continues to be an attractive jurisdiction for fund establishment.
Pride of place
With five decades of experience, Guernsey has become a leading location for investment funds and private equity business. Its reputation, location and tax-neutral status has attracted a global spread of leading investment managers to establish funds in Guernsey.
They have found high-quality legal, accounting, valuation, registrar, company secretarial and audit services for the structuring, launch and administration of their funds. The net asset value of total funds under management and administration stands in the region of £224bn. With its reputation as an established and well regulated offshore jurisdiction, it was no surprise Guernsey was placed on the Organisation for Economic Co-operation and Development (OECD) white list by the G20 in 2009.
The Guernsey Financial Services Commission (GFSC), established in 1987, operates within statutory powers regulating the local finance industry. This approach has ensured that Guernsey remains one of the best pragmatically regulated jurisdictions in Europe and a premier location to conduct business.
The Channel Islands Stock Exchange (CISX), based in Guernsey, has seen considerable growth since its inception having completed its 3,500th listing in January this year, and provides wide recognition for Guernsey-based investment funds and companies from around the world.
Guernsey fund structures
Fund regulation in Guernsey is robust; it does not offer unregulated fund structures. Funds, whether open or closed-ended, are either 'authorised' or 'registered'.
Authorised funds, as their name indicates, are authorised by the GFSC by means of a three-stage authorisation process and thereafter subject to ongoing supervision. Registered funds offer a fast-track regulatory process to launch and are registered with the GFSC in reliance upon the locally appointed administrators' due diligence and warranties which, among other matters, the fund documentation complies with applicable regulation and the parties behind the fund are fit and proper. Registered funds are subject to a lighter touch ongoing supervision. Flexibility is also retained as funds established outside Guernsey may have some aspect of administration, custody or management carried out in Guernsey, subject to complying with certain requirements. Such funds would not, however, be regarded as Guernsey funds.
In terms of fund structures, Guernsey law offers a modern and flexible approach ranging from companies, including cell companies, to unit trusts and limited partnerships, although companies remain the structure of choice for Mena funds. This flexibility was fully utilised in the recently launched World Shariah Funds PCC Limited (WSF) an authorised open-ended collective investment scheme listed on the CISX, to which Ogier was lead counsel.
WSF is a Shariah-compliant investment fund which also complies with the requirements of the Undertakings for Collective Investment in Transferable Securities (Ucits) Directive and therefore is suitable for investment by Ucits funds. WSF is structured as a protected cell company with three initial cells and six classes in each cell. The first cell invests in Shariah-compliant global equities, predominantly those approved by the S&P developed BMI Shariah index. The second is focused on Shariah-compliant equities in the Asian-Pacific region. The third cell invests in Shariah-compliant equities in the Mena region, predominantly those approved by the S&P Pan Arab Shariah composite index, while each of the sub-classes within the cells reflect differences in fee structure and currency.
Mena funds, particularly private equity, have also found Guernsey companies' ability to issue partly paid shares and call on shareholders to pay further capital as and when required useful. The CISX permits partly paid shares to be listed.
An optimistic future
Guernsey has seen a cautiously optimistic 2010 to date, with new fund launches, particularly in the private equity, infrastructure and property asset classes. The quarterly statistics recently released by the GFSC show the net asset value of total funds under management and administration grew by £26.8bn (13.6%) over the quarter ending 30 June 2010 to £224.2bn. For the year since 30 June 2009, total net asset values increased by £54.6bn (32.2%).
A significant increase in the value of these funds was represented by a large number of non-Guernsey schemes (funds for which some aspect of management, administration or custody is carried out within Guernsey), which increased by £27.9bn (57.1%) over the quarter to £76.9bn and by £31.9bn (70.9%) since 30 June 2009.
Furthermore, a number of leading names have moved into the island since the start of the year, underlying a shared optimism. These include JP Morgan and BNY Mellon in the area of fund administration, who add their name to an already long list of administration service providers, while hedge fund manager BlueCrest Capital Management and financial services group Shore Capital has relocated its headquarters from London to Guernsey. This does not mean Guernsey, however, does not have its own challenges. In common with other fund jurisdictions, Guernsey was affected by the economic downturn and has seen not only a marked reduction in the number of funds coming to the market, but those which do launch frequently have less money than originally targeted.
More is being demanded of service providers and service levels are under review. Furthermore, the proposed EU Directive on Alternative Investment Fund Managers (AIFM) continues to create uncertainty for all offshore centres providing alternative fund services as to how managers and funds from outside the EU will continue to be able to access European markets. However, the current indication is Guernsey, on account of its approach to regulation, is likely to benefit from the AIFM Directive in its final form.
Mena interest rising
Guernsey is working hard to attract business from Mena clients. For example, Guernsey Finance (the island's promotional agency) is a regular visitor to the region. In addition to emphasising its reputation as an established and well-regulated financial centre and its flexible legal system, the island also points to the CISX, which may provide opportunities to market Middle East products more widely.
In recent years, Guernsey service providers have placed significant focus on improving their understanding of the individual requirements of Mena clients and products.
The global economy appears to be improving and Guernsey is well placed to benefit from this. For the Mena region, Guernsey represents an attractive jurisdiction with which to do business. The challenge is for Guernsey, which is less well known than a number of its competitors in that region, to clearly make its case.
Ogier is one of the world's leading providers of offshore legal and fiduciary services with over 800 staff in nine locations: Bahrain, BVI, Cayman, Guernsey, Hong Kong, Ireland, Jersey, London and Tokyo. We advise on the laws of BVI, Cayman, Guernsey and Jersey and are the only offshore law firm with a well-established, substantive presence in these four key offshore centres.
Corporate and finance law and associated fiduciary services form the core of our business, principally in the areas of banking and finance, investment funds, corporate and private wealth. At the same time, Ogier is a full-service firm with strong practices in the areas of employee benefits, employment law, litigation and property.
We have long-established relationships with many of the world's leading international financial institutions, professional advisers and regulatory bodies and are instructed by 80% of the top 50 global law firms and 60% of the top 50 banks. For further information, visit www.ogier.com
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.