Guernsey: Guernsey – Demonstrating Clear Value For Fund Managers

Last Updated: 18 March 2016
Article by Dominic Wheatley

Most Read Contributor in Guernsey, September 2018

Guernsey's funds industry is demonstrating clear value to fund managers and is increasingly being viewed as a world-leading jurisdiction in which to establish investment funds; in particular hedge funds and private equity funds, explains Dominic Wheatley of Guernsey Finance.

A report authored by KPMG and commissioned by the States of Guernsey (and supported by Guernsey Finance), published in May 2015 – entitled International Capital Flows – found that Guernsey funds facilitate GBP25 billion of inward investment to the UK from global investors and some GBP105 billion of inward investment to Europe. It estimates that European fund managers running Guernsey funds earn GBP1.8 billion of fees, of which UK-based managers earn GBP1.1 billion.

The report points out that global investors are comfortable investing into Guernsey fund structures thanks to the Island's regulatory track record and commitment to transparency. In total, Guernsey's fund industry has GBP220 billion under management. It is home to 800-plus investment funds, of which private equity funds alone account for GBP85 billion of assets.

It is home to a wide range of investment management companies such as KKR, Pantheon, Starwood, Apollo, HarbourVest. Most recently, on 10 November, 2015 Axiom Alternative Investment launched a Guernsey closed-ended European-focused debt fund – Axiom European Financial Debt Fund – on the London Stock Exchange's Specialist Fund Market.

OECD membership

Guernsey has full membership within the OECD through the UK. A clarifying statement was made on 13 August, 2015 by HM Treasury and Ministry of Justice to reaffirm the Island's role and position within the OECD, which it has held since 20 July, 1990. This clarification is key because in some jurisdictions there are prohibitions on the marketing of funds that do not originate from an OECD country.

At the time, Guernsey Finance Chief Executive Dominic Wheatley said: "The statement once again emphasises our quality and standing in the international funds environment." He added: "This statement removes any doubt about our position and reinforces the fact that Guernsey is a leading international finance centre."


Legislation such as AIFMD and Base Erosion and Profit Sharing (BEPS) has led to increased scrutiny of fund jurisdictions with respect to structuring arrangements and the ability to demonstrate substance; i.e. showing depth across all dimensions such as operations on the ground, expertise, systems, processes, staff, etc. In this respect, Guernsey is well positioned. Indeed, such is the strength and reputation of its service provider infrastructure that an estimated USD100 billion of non-Guernsey funds are administered and managed on the Island.

One can find a range of prominent global administrators including Northern Trust, Citco, and State Street in addition to boutique independent administrators.

For private equity and real estate managers who need to find a 'depo lite' solution for non-financial assets under AIFMD, they can also choose from a number of major global custodians in Guernsey should they not wish to rely on their appointed fund administrator. Finally, from a substance perspective the Island has high quality legal, accounting, valuation, registrar, company secretarial and audit services for the structuring, launch and administration of funds. Guernsey has a reputation for robust corporate governance and there is an experienced and qualified pool of non-executive directors on the Island.


The issue regarding substance plays directly to AIFMD, which states that, in order for both the fund and the manager to genuinely be considered as based outside the EU, the manager must demonstrate that they have an on-the-ground presence. Where Guernsey has an advantage over other jurisdictions is its close proximity to London. Not only that, but it already has a number of investment houses which have chosen to set up offices on the Island; for example, Permira, Terra Firma, Apax, BC Partners.

This is helping Guernsey to encourage other investment houses to strengthen their presence within a Third Country domicile that lies outside of the EU. Take, for example, Terra Firma, one of Europe's leading private equity firms. Not only is the firm headquartered in Guernsey but its Chairman, Guy Hands, also lives on the Island. He has been joined by another well-known figure in the PE sector, Jon Moulton, Chairman of Better Capital who, since moving to the Island, has become Chairman of the Channel Islands Securities Exchange (CISE).

In response to AIFMD, Guernsey introduced a dual regulatory regime. This means it is possible to continue to distribute Guernsey funds into both EU and non-EU countries. If managers want to continue to conduct business outside of Europe, they have the opportunity to establish fund vehicles and remain fully out of scope of AIFMD.

For those, however, who wish to market their funds into Europe, they can opt in to AIFMD, or to use Guernsey as a conduit through which to avail of National Private Placement regimes. This means that Guernsey is almost uniquely positioned to provide a variety of options for servicing both EU and non-EU business in the most effective manner from a European time zone.

ESMA recommends third country passport

Guernsey's opt-in equivalent regime, which has been in place since January 2014, is appropriate for funds requiring full AIFMD compliance. Back in the summer, Guernsey further reinforced its appeal, particularly to non-EU managers, by receiving a recommendation from the European Securities and Markets Authority (ESMA) for a "third country" passport. ESMA awarded the recommendation to Guernsey, Jersey and Switzerland, confirming that Guernsey had demonstrated the ability to satisfy the criteria required under AIFMD.

Dominic Wheatley (quoted earlier) was quoted as saying: "Guernsey's response to the AIFMD regime has been second to none, so to receive ESMA's recommendation for an AIFMD passport extension is extremely pleasing."

Recent figures released by the European Securities and Markets Authority (ESMA) would suggest that Guernsey is proving to be a key route into Europe for AIFs. Data contained within ESMA's advice on the granting of third country passports under the AIFMD showed that Guernsey was the third largest non-EU fund domicile – trailing only behind the US and Cayman Islands – when it comes to the number of non-EU AIFs being marketed into Europe: in particular, core markets such as the UK, Ireland, Sweden, the Netherlands, Benelux, Finland and Denmark. For example, some 25 Guernsey AIFs were being marketed in the UK under Article 36 in the final quarter of last year, according to the National Competent Authority (NCA).

In addition, 57 Guernsey AIFMs and 121 Guernsey AIFs were being marketed in the UK under Article 42 for the same period. To clarify, Article 36 relates to UK and EEA-based AIFMs marketing non-EU AIFs, whilst Article 42 relates to non-EEA AIFMs marketing either EEA or non-EEA AIFs into Europe.

These figures are likely to increase now that ESMA has awarded Guernsey the opportunity to invoke the "third country" passport, further underscoring the importance of the jurisdiction as Europe's regulated fund market evolves under AIFMD.

Fund structuring

The Island also has expertise in using a wide range of investment vehicles including unit trusts, PCCs, ICCs and limited partnerships. As of November 2008, the two types of fund, open-ended and closed-ended, may make application for authorisation or consent under one of three routes:

  • Authorised Fund by standard application;
  • Authorised Fund by Qualifying Investor ("QIF") application;
  • Registered Fund application.

Promoters of authorised funds, which are typically offered to professional or experienced investors willing to invest a minimum of USD100,000, are able to take advantage of the qualifying investor fund or "QIF" fast-track application process. Under such a scenario, an appropriately licensed Guernsey administrator must certify to the Guernsey Financial Services Commission ('GFSC') that it has performed sufficient due diligence on the promoter and that the requisite disclosures are made in the offering document of the scheme. The benefit to managers under this arrangement is speed to market. The administrator does all the heavy lifting, so that by the time a fund application reaches the Commission, it typically provides a guaranteed response time of three business days; a significant benefit to managers who need to get their fund to market to avoid losing investor capital commitments.

As a general rule of thumb, all Guernsey-domiciled funds are required to appoint a locally licensed administrator, which is referred to as a "designated manager". If a fund promoter chooses an open-ended fund structure, the fund must appoint a Guernsey licensed custodian to hold and safeguard its assets. By contrast, a Guernsey closed-ended fund is not required to appoint a local custodian or a local manager/adviser.


Choosing Guernsey offers the advantage of having funds domiciled in a jurisdiction where there are 'fast track' routes to market, access to global capital markets, flexible cell company legislation that provides for 'incubator' vehicles and a corporate tax regime which means that the effective rate for both funds and principal managers is 0 per cent.

Factor in that its OECD membership has been clarified by the UK government, the Island's close proximity to London and other leading European cities, and its recommendation by ESMA to be awarded a 'third country' passport under AIFMD, and Guernsey ticks a lot of vital boxes for global fund managers.

An original version of this article was published in the Hedgeweek Guide to Relocation 2016, December 2015.

For more information about Guernsey's finance industry please visit

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.

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