Originally published in ICFA, August 2011
Andrew Tjaardstra, Editor of International Custody and Fund Administration (ICFA), finds out how the funds industry, local custody and fund administration market is shaping up in Guernsey, one of the two largest of the Channel Islands.
With its own bank notes, stamps and tax laws, Guernsey has an
unusual relationship with the United Kingdom. As a British Crown
dependency in the English Channel, it is the responsibility of the
United Kingdom to defend, but it is not part of the UK, even though
its currency is linked directly to the United Kingdom. Some 6,000
years ago or so, Guernsey was attached to France before rising sea
levels cut it off from the mass of continental Europe. More
confusingly it is not part of the European Union. And, through hard
work and ingenuity the small island has a AAA credit rating
– superior to that of the US – and its very own
exchange, the Channel Islands Stock Exchange.
Its tax status, attractive local features and being only 45 minutes
flight from Gatwick airport, near London, has attracted the likes
of private equity heavyweights Guy Hands (now notorious for his
firm Terra Firma buying EMI) and Jon Moulton to live here.
What is definitely not confusing is that a huge amount of money is
based on the island. At the end of March, Guernsey saw growth in
assets under management hit a record of £236.6 billion. Fiona
Le Poidevin, deputy chief executive and technical director of
Guernsey Finance, explains Guernsey is now third behind Luxembourg
and Malta in the financial stability index.
Patricia White, managing director at Legis Fund Services, who was
part of a management buyout of the firm in March, says: "We
are seeing opportunities in private equity, property and
alternative investment funds, particularly in clean technology
funds with investment strategies such as wind farms, timber and
waste disposal." Legis has doubled its number of employees to
64 in the last three years, and moved to new offices on New Street
in the capital St Peter Port.
Tamara Menteshvili is founding director and chief executive of the
Channel Islands Stock Exchange. She says: "There is an
increasing demand for the listing of private equity and venture
capital funds. Also, it would appear that there is strong investor
appetite for tangible assets, particularly in relation to natural
resources such as biofuel, energy, precious metals and
forestry."
As for service partners, there is a degree of flexibility on the
island, with custodians, for example, often having the backup of a
larger partner 'onshore'. Sadie Podmore, head of custody
services at Butterfield Bank (Guernsey), comments: "[Another
feature of the market] is the continuing openness on the part of
fund managers to move between service providers, whereas
historically clients kept all their eggs in one basket. Nowadays,
there's a tendency towards spreading risk and looking for best
of breed within the market for each service provider, whether
administrator, custodian or auditor."
Uncertainty
There are concerns for growth though. Patrick Firth, chairman of
the Guernsey Investment Fund Association, the industry's
representative body, says: "The biggest concern is regulatory
uncertainty." He is referring to the alternative investment
fund managers directive (for which the group has set up a technical
sub-committee) Fatca and Dodd-Frank (see. pp.48-49). Guernsey is
confident it is well positioned for the regulation when it is
finally formalised, and for example, the island can gain EU
passport status.
Finding your way to invest in the economic future is especially
hard with so much uncertainty. Speaking at the Guernsey Fund Forum
in London in May, Jon Moulton, founder of Better Capital, a private
equity company that specialises in turnarounds and is based in
Guernsey, said: "The [financial] crisis hasn't been as bad
as I thought. The low interest rates have helped considerably.
There are still enormous amounts of refinancing to come before we
are fully through the crisis." He added: "Although it is
impossible to predict where is best to invest over the next 10
years, geography may matter more than [asset] class."
Better Capital's fund administrator is locally based Heritage
Fund Administration. Mark Huntley, managing director of Heritage,
which has around $50 billion of assets under administration, says
his company avoids open-ended funds, side-pockets or assets with
emotions attached such as cars, wine and art. He says that private
equity and investments in clean technology are growing sources of
business.
Russia
Michel Davy, managing director of Ipes, Guernsey, an
administrator for private equity companies, also sees energy and
infrastructure as a growing trend. Davy says the lead time to raise
funds is longer than before the crisis, and that investors have
"more choice" and are "more fussy". The company
has strong links with funds in Germany and Russia, and is expecting
to see growth in Russia as infrastructure funds increase in the
lead-up to the 2018 football World Cup.
A small delegation led by Guernsey Finance this year visited Moscow
to establish more ties, as the country seeks to attract foreign
investment; outward investment is difficult due to restrictions.
Despite Le Poidevin describing the pensions and insurance markets
as "immature", she says there could be great potential in
the future, especially with the large amount of private wealth
across Russia. A similar delegation visited China, including
Shanghai and Beijing in August, with another trip planned to
Singapore and Hong Kong in November.
In a further boon to the island, Guernsey, along with Jersey, has
just been removed from the US Senator Levin's blacklist which
listed the islands as "offshore secrecy jurisdictions",
in his attempt to clamp down tax evasion in his 'Stop Tax Haven
Abuse Act' (see
www.icfamagazine.com/2094379). Guernsey's chief minister
Lyndon Trott met Senator Levin's chief investigator and Counsel
Bob Roach to emphasise Guernsey's well-regulated financial
sector, its lack of bank secrecy laws and its co-operative stance
on tax information sharing.
Although it will not be immune from the growing global economic
turbulence, Guernsey it is well placed, especially for
differentiated assets, and there are plenty of fund administrators,
lawyers and custodians on the island to negotiate with, offering a
diverse and personal service.
Useful organisations on Guernsey
The Guernsey Investment Fund Association
The trade association was established in 1989 to represent the
island's investment management industry. Its members include
mutual fund managers and trustees, stockbrokers, custodians, fund
administrators, private client asset managers, life assurance
companies, investment banks, and professional firms such as lawyers
and accountants who are closely involved in the work of the
investment business industry.
www.gifa.org.gg
Guernsey Finance
Guernsey Finance is a joint industry and Government initiative
to defend and promote the long term reputation, stability and
development of Guernsey as an international centre of excellence
for financial services.
www.guernseyfinance.com
Guernsey Financial Services Commission
The Guernsey Financial Services Commission is the regulatory
body for the finance sector in the Bailiwick of Guernsey. The
Commission's primary objective is to regulate and supervise
financial services in Guernsey and to uphold the international
reputation of Guernsey as a finance centre.
www.gfsc.gg
Channel Islands Stock Exchange
The exchange, founded in 1998, services Guernsey and Jersey. It
is approaching 4000 listings with over 25 countries represented. It
has in excess of $50 billion of funds listed with a mix of funds
and specialised debt. Share prices are available on Reuters.
www.cisx.com
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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