Originally published in Corp INTL, July 2011.
Mark Douglas, Managing Director of Mercator Fund Services, explains why so much fund business, particularly in relation to alternative funds, is moving to Guernsey.
The recent global financial crisis has led to a reduction in the number of new fund launches worldwide. However, Guernsey is bucking this trend with its fund industry continuing to go from strength to strength. As at 31 March 2011, the value of investment funds under management or administration in Guernsey reached a record high of Ł264 billion, an increase of 34% over the year.
Guernsey stands out because its funds industry has been established for over 40 years which means local service providers are highly qualified and experienced in this sector. Guernsey's regulatory regime is robust yet flexible and the Island boasts a stable government with no public deficit.
Guernsey features alongside the UK and US on the OECD white list and has recently received recognition from the International Monetary Fund for its high standard of regulation. For a long time Guernsey has been the most popular domicile for investment companies listed on the LSE and, more recently, it has also become the jurisdiction of choice for incorporating Indian entities listing on AIM.
Recent high-profile corporate failures mean fund promoters and investors are, more than ever, looking for well regulated jurisdictions in which to domicile funds. Whereas previously certain jurisdictions may have been favoured for their lighter regulatory touch, the focus is now on robust but sensible regulation. This is an area where Guernsey has excelled in recent years due to the willingness of the regulator to engage with industry. Indeed, it has even been noticed that a number of existing Caribbean-based funds have chosen to redomicile in Guernsey recently.
Even where a fund chooses to remain domiciled in another jurisdiction, Guernsey is often selected as the location from which the administration is carried out due to the quality of the service providers here. This is reflected in the value of non-Guernsey funds, where administration and/or management is provided from Guernsey, which has risen by 86.1% in the year to 31 March 2011.
Promoters are also attracted by the range and quality of service providers. All the major accountancy firms are represented here and there are also an increasing number of international law firms to supplement the established and well respected local practices. Many of the major custodians have a presence in Guernsey and there are over 50 licensed fund administration companies. There is a well-qualified workforce and numerous training courses are run locally which are tailored to the needs of the industry. Mercator, for example, employs several qualified accountants, chartered secretaries, compliance managers and an in-house legal counsel.
Since the start of this year, Mercator has already been approached to administer a number of investment companies domiciled in the BVI and looking to list on AIM. Promoters need to know that the administrator they choose is capable of handling complex structures, including corporate structures with multiple subsidiaries in different jurisdictions. They are looking for a competent company secretary with experience in complying with the listing rules of various stock exchanges and the requirements of applicable codes of corporate governance.
Guernsey's proximity to the City of London is also an important factor. The Island is integrated into the City of London and service providers maintain close contact with the major London law firms and tax advisers to keep abreast of any relevant developments.
Over the past two decades, Guernsey's fund industry has experienced a gradual shift from high-volume retail funds (where costs are a concern and quality is often sacrificed) to institutional niche funds. Guernsey has developed a reputation as a premier location for alternative investment funds and service providers now have significant experience in dealing with asset classes such as commodities, property, private equity and funds of hedge funds, as well as more esoteric investments.
At the same time, legislation in Guernsey has evolved to meet the changing nature of the fund industry. As a result, Guernsey is at the forefront in terms of developing new fund products and service providers are adept at taking on new challenges. Mercator, for example, has worked closely with a client's legal advisers to achieve the first listing of a Guernsey company on the Toronto Stock Exchange.
The age of the independents?
The growth in the alternative fund sector in Guernsey has coincided with the emergence of a number of independent fund administrators ideally suited to service these funds.
Alternative funds each have different service requirements and a smaller administrator is able to provide a more tailored and personal service whereas a larger administrator may struggle to fit the fund into its standard operating model. Independent administrators can also offer a more cohesive service delivery especially compared to a large administrator that chooses to outsource part of its services. Locally-owned independents are often more responsive than large bank-owned administrators as they are able to make decisions locally and quickly without having to refer matters internally.
Independent administrators are also able to price their services more competitively as they are not hindered by the high cost base associated with a large infrastructure and do not rely on providing ancillary banking or custody services.
The strengths that Guernsey's success has been built on are more important now than ever and latest statistics show a seventh consecutive quarter of growth, indicating that Guernsey is likely to remain a leading jurisdiction for alternative funds for many years to come.
With a history going back over 30 years, Mercator has deep roots in Guernsey's professional services industry and has developed into one of the leading independent fiduciary companies in the island, employing over 70 people. At Mercator we recognise that no two funds are the same and we do not offer a 'one size fits all' solution. We provide a bespoke service and become immersed in our client's business, taking a hands-on role. We provide a professional, proactive service and often develop a 'partnering' relationship with our clients in order to make a positive contribution to the operation and direction, and ultimately the value, of the investment vehicle we administer.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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