Guernsey: Guernsey Offers Substance For A Changing Funds World

Last Updated: 2 June 2015
Article by Dominic Wheatley

Most Read Contributor in Guernsey, September 2018

Guernsey's capacity to offer substance is a major attraction for asset managers amidst the changing international tax and regulatory standards, according to panellists at the Guernsey Funds Forum 2015.

The event was held in London last week and attracted more than 500 attendees.

Providing his introduction to the forum, Dominic Wheatley, Chief Executive of Guernsey Finance, said: "Guernsey is home to major international fund administration names and, increasingly, to leading asset managers with offices, staff and growing teams in the Island. We are a fund jurisdiction of real substance."

The issue of substance was explored further during the first panel session, which was titled 'meeting the needs of European private equity' and included a focus on Base Erosion and Profit Shifting (BEPS) and the Alternative Investment Fund Managers Directive (AIFMD). James Gee from Weil told delegates that Guernsey was doing a "very good job" at meeting challenges such as BEPS and AIFMD and they "actually present opportunities" to centres such as Guernsey because they are able to differentiate themselves through service standards and pragmatic, responsive regulators.

He said: "That is how Guernsey needs to differentiate itself because ultimately, I hope we end up with a good result under BEPS, but I think where the threats will come into play down the line are when people start to look at substance issues. In order to maintain substance, you need really good, pragmatic service solutions. You need good people. You need to be able to send people to Guernsey easily and quickly, with not too much fuss over whether or not they are allowed to work there. It's those kind of pragmatic things that Guernsey has to do and has been doing and, I think, will continue to do."

Robert Mellor, Tax Partner at PwC, said: "There is a lot of concern in the UK with the DPT [Diverted Profits Tax] regime, how might it impact managers who have got GPs [General Partners] or offshore lead managers in places like Guernsey...If you haven't got the right people on the ground justifying the value of the profits that you are keeping there you are absolutely in trouble now."

Emma Bailey, Director of the Investment Supervision and Policy Division of the Guernsey Financial Services Commission (GFSC), added: "We have to ensure there is the appropriate amount of substance in the jurisdiction, and that has been the case historically. What we are probably seeing now is far more enhanced discussion around that. As a jurisdiction, we've always tried to ensure that, whilst it is an area of interest, we've never been as prescriptive as you might have thought in terms of how that substance has been achieved.

"I think it's because we've got the good ground, and perhaps it's because of that basis that it's always been a question that we've asked. So you come to Guernsey, you are going to get asked that question about substance, so the discussion has always been there. It's just now in different terms, so it's BEPS, it's AIFMD, but the question has always been there about substance. But as I said, we have tried to be pragmatic and to find the solutions to achieve it."

The panellists agreed that the post-crisis environment and its repercussions had also led to increased due diligence and compliance.

Mr Mellor said: "Increasingly we see investors in their due diligence asking about tax and tax risk and I think there will be more interest in future about what is the pre and post-tax type return on a fund, and really understanding what exposures they have to some of these tax issues. So, they are getting smarter...and asking the questions, and tax will be one of the areas, as well as regulation and compliance."

Ms Bailey said: "I think clearly due diligence from the investors has played a part, but probably quite rightly, and I think if that is slowing up the process, all to the good. Hopefully it will ironically speed it up – if they've done their due diligence, then surely they've found the investment manager they like, they will stick with it."

Karen Sands, Head of Finance at Hermes GPE, added: "We've just completed two fund raises, one in private equity and one in infrastructure, and due diligence – investor due diligence – has been a significant part of what we do, as you can imagine."

She said that due diligence included the investment decision making but, also, "the DD is extended beyond the investment team, so it looks at the finance function, how that operates, it looks at the governance of the business as a whole..."

Tim Hames, Director General of the British Private Equity and Venture Capital Association (BVCA), said: "Furthermore it's going all the way down the chain. I think that managers now do more and longer due diligence for deals. I think management teams take longer to think about what sort of relationship they want, if they've got multiple private equity teams bidding for them. I think that although it can be an irritation and a frustration, probably thinking about things for a bit longer is not a bad thing."

Mr Gee said that there are still a lot of smaller managers trying to get off the ground but particularly those in emerging markets were likely to be finding it a lot harder to cope with the levels of due diligence, the levels of regulation, tax structuring requirements and other complexities they need to deal with now.

Mr Mellor said that this had led to a wave of M&A.

"Some of the smaller and mid-size managers, be they in emerging markets or elsewhere, don't want to, can't, or by choice don't want to engage with the regulatory burden going forward, are finding it hard to raise capital. There have been a lot of those people being taken out by the bigger managers, either as M&A or as taking teams out and moving in. So you are going to see, I think, consolidation where not everyone will be able to live with the burden of regulation and investor demands going forward," he said.

For more information about Guernsey's finance industry please visit

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