Matt Sanders, Group Partner at AO Hall, looks at the factors that make Guernsey a good place in which funds can do business
£204,000,000,000 is the sort of number for which Dr Evil might well be proud to demand as a ransom in an Austin Powers movie. Certainly, by anyone's standards, it is an enormous sum of money. It may well come as some surprise that £204 billion is, in fact, the gross asset value of open and closed-ended funds established in Guernsey, according to the statistics published for Q3 of 2015. Certainly not bad for an island of 65,000 people!
One of the phrases regularly used to describe Guernsey as an island is that it punches well above its weight – and indeed, when it comes to funds, that description is a massive understatement. This naturally begs the question; why is Guernsey such a centre of excellence when it comes to establishing, managing and administering investment funds? In my view, there are three key reasons.
The use of Guernsey fund vehicles to access European capital, or to invest into European assets, is a common phenomenon and remains viable, notwithstanding the AIFMD.
A recent KPMG report highlighted that almost 58% of capital invested in Guernsey funds comes from European investors, split between 28% from the UK and 30% from Continental Europe. Further, it highlighted that approximately 68% of assets of Guernsey funds are located in Europe, with 22% allocated to the UK. The clear implication from the report is that Guernsey is an ideal jurisdiction from which to attract European or global capital, for investment into assets located in or outside Europe.
It should be added that this is despite the introduction of the Alternative Investment Fund Managers Directive in the European Union. The types of fund in which Guernsey specialises, including private equity funds, which have dominated Guernsey's closed-ended fund market for a number of years, are often ideally suited for continuing to use the national private placement regimes in the jurisdictions that matter in Europe, and without the need for full compliance with the directive.
Furthermore, the European Securities and Markets Authority (ESMA) has confirmed that Guernsey stands at the head of the queue of jurisdictions allowed to access the third-country passport regime when this becomes available. When extended, the passporting regime will allow Guernsey funds and locally-based managers to market their funds across the EU. While the decision as to the activation of the third-country passport regime remains with the Council of the EU, it is hoped that further news will be forthcoming in the early part of 2016.
Perhaps not surprisingly given the figures above, Guernsey has a large number of fund administration providers who are 'best-in-class', and who are very experienced at establishing and successfully administering funds. These range from providers with a global footprint to those who specialise in Guernsey. In terms of accounting and audit, funds have the pick of all of the 'Big Four' accounting firms who have offices in Guernsey, in addition to a number of the well-known UK 'challenger' firms. The legal market is equally competitive and diverse, and the banking and custody side continues to attract and retain major players.
The result is a competitive marketplace which ensures that Guernsey is not only attractive to those who wish to establish Guernsey funds, but also to those who want to use a Guernsey service provider for funds established in other jurisdictions. Although statistics are not kept for closed-ended schemes, the latest figures record that Guernsey service providers have attracted the custom of 225 non-Guernsey open-ended schemes, for which a Guernsey service provider provides management, administration or custody services.
There are many factors that make a jurisdiction a good place in which funds can do business. To name but a few:
- Guernsey is politically stable;
- Guernsey is tax neutral, with investment funds generally being exempt from Guernsey tax;
- Guernsey is responsible and co-operative with foreign regulators and tax authorities, both in Europe and elsewhere;
- Guernsey's finance industry is prudently regulated by the Guernsey Financial Services Commission, which is respected as being an accessible and flexible regulator, whilst at the same time ensuring that Guernsey's reputation as a well-regulated jurisdiction is maintained;
- Guernsey has a robust AML framework; and
- Guernsey has the natural advantages of being just a 45-minute flight from London and in the same time zone, meaning that the connections with and access to London's vast finance industry are extremely strong.
All in all, even Dr Evil might be impressed. He isn't welcome, though!
An original version of this article was published in the WealthBriefing's IFC World 2016 Guide, April 2016.
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.