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."

Substance

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.

AIFMD

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.

Conclusion

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 www.guernseyfinance.com.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Carey Olsen
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Carey Olsen
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions