The provision of family office solutions and services makes perfect sense for a jurisdiction such as Guernsey, explains Fiona Le Poidevin, Chief Executive of Guernsey Finance.
For an International Finance Centre such as Guernsey – widely regarded as a jurisdiction of choice for both investment funds and wealth management – the provision of family office (FO) solutions and services makes perfect sense. Our popularity within the FO sector is driven by a combination of factors. There is an appreciation of the fact that Guernsey has its own elected parliament, a stable system of government and a mature and sophisticated legal system that, through a combination of statute and common law, provides certainty and predictability in terms of the ownership and operation of its wealth structures and investment vehicles.
The Island's close proximity to the City of London and mainland Europe, as well as a convenient time zone, also add to the Island's appeal. As does the fact that Guernsey, with more than 50 years' experience of servicing private and corporate clients, has unparalleled capability in dealing with the inherently varied nature of FO structures.
The Island's 150 licensed fiduciaries range from multinational organisations to independent, boutique operations, all specialising in the preservation of individual and family wealth. These fiduciaries are complemented by the Island's broader financial services industry as well as a strong network of professional support services, including multi-jurisdictional law firms and global accountancy practices.
FOs are equally put at ease because of Guernsey's world-leading standards of regulation. In 2011, the IMF reported Guernsey as being compliant or largely compliant with 47 out of 49 of the Financial Action Task Force (FATF) recommendations on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) – the highest standard of any jurisdiction so far assessed. Guernsey was also one of the first places in the world to regulate trust providers and, for example, the UK still does not have a regulatory regime for trusts.
Global cross-border private wealth structures
In addition to the well-known trust route, individuals and families can also structure their wealth via corporate vehicles including the Private Trust Company (PTC) and Managed Trust Company (MTC) which are utilised to hold assets and investments of all types, particularly where there is a desire to retain control within the family. PTCs have become particularly popular in recent years as wealth creators seek to establish increasingly portable structures for their assets.
Another way to structure assets is the Protected Cell Company (PCC). The PCC concept, pioneered by Guernseyin 1997, is now used across investment fund platforms, captive insurance vehicles and structured products.
However, one of the most innovative applications of this tool has been in the field of family wealth planning.
The PCC allows for the creation of any number of individual cells within a single corporate entity, each of which are statutorily ring fenced from the core of the PCC and its other cells. Guernsey company law provides that the assets of one cell cannot be used to meet the liabilities of another cell. It therefore provides a cost effective means of isolating investments without the need for separate holding companies. The structure can be applied for the purpose of allocating assets, via separate cells, amongst different members of the same family without risking liabilities incurred on behalf of one contaminating the assets of another.
Furthermore, the PCC operates with a single Board of Directors thereby allowing a principal family member to exercise a degree of control over the assets allocated across the family. The PCC's single corporate identity can deliver considerable savings in terms of directors' fees, administration and audit costs and statutory expenses over and above the traditional non-cellular structures historically employed in the FO world.
A pertinent benefit of utilising a PCC is that they allow for consolidated reporting which means that the patriarch can have one report or statement showing his or her wealth and its sources. This neat, wrapper like reporting platform is appealing, coupled with the certainty that there is no cross-contamination between cells.
Legislation introducing Guernsey foundations came into force in January 2013. The foundation is an important wealth management vehicle and another tool now available to our service providers. The Guernsey foundation is an incorporated entity with a separate legal personality. As such, on face value, it looks more like a company than a trust. However, unlike a company, it does not have shareholders to whom the board are accountable. Instead, the foundation holds assets (in its own name) on behalf of beneficiaries, particular purposes, or both, in accordance with the foundation's constitution.
Private wealth investment
Of course, wealth management encompasses not just preserving but also increasing wealth and therefore many patriarchs and families often wish to invest their money in high yielding investment funds. As such there is a large number of FOs seeking the right investment proposition and we are witnessing an increasing focus on FO allocations to investment funds. Indeed, the 2014 Preqin Global Hedge Fund Report recently highlighted that FOs were the investor type which saw the largest increase in hedge fund allocation during 2013. Between December 2012 and December 2013 these investors increased their mean hedge fund allocation from 16.6% of total assets to 19.5% - up again from 14.9% in 2011.
Guernsey has a thriving investment funds industry with structures that are legally robust and tax efficient.
Corporate and limited partnership structures are utilised to hold assets and investments of all types with Guernsey platforms managing investments in North America, Europe, Latin America, Asia Pacific, and the emerging markets.
Figures from the Guernsey Financial Services Commission (GFSC) show that the total value of funds business in Guernsey at the end of 2013 stood at £266bn – a 33% rise over the past five years.
Guernsey has also embraced the Alternative Investment Fund Managers Directive (AIFMD) and is operating a dual regime whereby it is possible to continue to distribute Guernsey funds into both EU and non-EU countries.
Guernsey is able to offer both an AIFMD compliant regime and a regime not subject to AIFMD (and therefore not subject to the onerous AIFMD requirements and associated costs of compliance), with the ability to create parallel structures. For example, it makes commercial sense for a fund manager marketing almost exclusively to Europe to have a fully AIFMD compliant platform and this could be a Guernsey platform, as the Island introduced a fully equivalent, opt-in AIFMD route to market on 2 January 2014. This compares to a manager who has a Luxembourgplatform having to comply fully with AIFMD even if there is a large proportion of non-EU investors. It means European mainland platforms do not offer the ability to separate the reporting obligations away from non-EU investors, as you potentially can with a Guernsey platform.
An interesting FO trend has been an increasing appetite for cleantech investments. Unlike traditional institutional investors, FOs do not necessarily need to seek returns at the expense of non-financial considerations and ethics. The FO can seek investments that are aligned to the values of the family it is seeking to benefit. Another factor affecting FO demand for cleantech assets has been the lack of traditional funding available to the sector and the resulting increased returns for private investors.
In addition, cleantech assets often carry longer investment maturity profiles thereby suiting the longer-term growth objectives concerning future generations. Guernsey itself is seeing notable success in attracting collective investment vehicles focusing on this sector. In 2013 alone The Renewables Infrastructure Group Limited, Bluefield Solar Income Fund Limited and Resonance British Wind Energy Income Limited all successfully launched as Guernsey-registered closed-ended investment funds.
The cleantech sector is just one area where its attractiveness to FOs perfectly illustrates how clients are becoming increasingly sophisticated and asking more of their service providers. It is also why Guernsey, which possesses expertise across a wide range of sectors and continues to evolve and adapt its wealth management offering, is perfectly placed to meet these challenges.
An original version of this article appeared in Campden FO's Jurisdictions supplement, August 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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