Originally Published: FTSE Global Markets, July 2007.
Guernsey’s investment fund industry is in 2007 continuing from where it left off in 2006 – experiencing substantial levels of growth that are pushing levels of business to record highs. Market conditions are undoubtedly playing their part but primarily these flows are due to an increasing number of fund promoters and sponsors from around the globe recognising how the Island’s expertise and infrastructure together provide a highly competitive climate in which to conduct business.
That said, we recognise that there is ever-more competition with the growth in the number of international finance centres and that, like ours, their business flows are (by their very nature) inextricably linked to the wider world economy and therefore subject to changes in the levels of global liquidity, where highs and lows tend to be cyclical in nature. Therefore, notwithstanding our current success and to stay ahead of the competition and maximise business whether the global economy is at a ‘peak’ or in a ‘trough’, work is ongoing to further enhance the Island’s funds environment. For example, in February this year the Island introduced a new registered closed-ended funds regime – a streamlined consent process that makes the domiciling of funds in Guernsey simpler and quicker. Guernsey is by no means resting on its laurels.
Booming funds industry
Figures from the Island’s regulator, the Guernsey Financial Services Commission (GFSC), show that by the end of March 2007:
- The value of funds under management and administration in Guernsey had reached a new record high of £140.4bn – up £10.2bn (7.8%) during the quarter and £29bn (26%) year on year
- A breakdown reveals that at the same time:
- Guernsey domiciled open-ended funds reached a new record total of £58.7bn – an increase of £2.1bn (3.7%) over the first three months of the year and a rise of £5.2bn (9.7%) from the end of March 2006
- Guernsey domiciled closed-ended funds stood at a new high of £56.4bn – up £7.9bn (16.3%) during the quarter and £22.6bn (66.9%) since the same time last year
- The combined value of these funds reached £115.1bn.
- Non-Guernsey schemes, for which some aspect of management or administration is carried out in the Island, also reached a new high, £25.3bn – a rise in value of £0.2bn (0.9%) during the quarter and £1.3bn (5.4%) during the previous twelve months.
- Fund approvals continue to run at record levels:
- During the past twelve months the Commission has authorised 31 new open-ended funds and 124 new closed-ended funds – making a combined 155, which is 89 more than between the end of March 2005 and the end of March 2006.
Peter Moffatt, Director of Investment Business at the GFSC has commented: "The record level of fund approvals seen in 2006 shows no sign of slowing down. There is a continuing flow of enquiries and expressions of interest from both new promoters and promoters already represented through their existing Guernsey funds."
Market conditions have undoubtedly played a part but primarily the figures indicate how more and more fund promoters and sponsors are viewing Guernsey as an attractive location in which to conduct business. Traditional funds remain well represented in these increased business flows but they are increasingly being complemented by alternatives such as fund of hedge funds, private equity and property that are becoming ever-more popular amongst investors’ portfolios, as well as more esoteric asset classes such as fine wine, fine art and timber
Guernsey has a funds industry where nearly four decades of experience in providing investment products and services has helped establish an expertise and infrastructure that makes the Island a jurisdiction of choice for promoters and sponsors, where examples include Alchemy, Terra Firma, Apollo and KKR (private equity) and Kenmore, Tilney Investment, Schroders and F&C (property).
Today, the Island plays host to an extensive array of investment businesses, including investment advisers, stockbrokers and more than 50 fund managers, custodians and administrators, who in combination offer a range of products and services for both retail and institutional investors from the general to the more specialised.
These providers are comfortable with both non-Guernsey and Guernsey open and closed-ended funds. The international marketplace for Guernsey funds is illustrated by the fact that they are now promoted or sponsored by leading institutions in 45 countries.
These funds can be established through a range of flexible investment vehicles such as unit trusts, limited partnerships, protected cell companies (PCCs) and incorporated cell companies (ICCs).
World-renowned investment management companies have the operation of their investment funds facilitated in Guernsey, where there is high quality legal, accounting, valuation, registrar, company secretarial and audit services for the structuring, launch and administration of funds.
Guernsey’s administrative heritage is increasingly being complemented not just by the availability of custody services but also fund managers, including those specialising in hedge funds, ranging from larger organisations like Financial Risk Management (FRM) to more boutique operators such as BBBSA Strategic Management Limited.
The Island’s unique environment – its location between England and France; Crown Dependency status, including legislative and fiscal independence; and unique relationship with the EU – has provided the basis for its successful development not just as a leading international funds centre but also a premier domicile for a host of financial services, broadly-comprising banking, fiduciary and insurance. These are supported by a comprehensive network of complementary services, including legal, accounting, auditing and tax advisers. Alongside stands the Channel Islands Stock Exchange (CISX) – proud of its speed, consistency and cost-effectiveness – which has just celebrated its 2,000th security listing.
Guernsey also boasts a large pool of experienced and qualified non-executive directors. There are no direct rules on the make-up of the board for funds domiciled in the Island but it makes practical sense that the majority of directors would be located locally. Taking this approach also helps provide clear delineation between the onshore investment management and the offshore overall management and control of the company. Finding the required personnel is made easy in Guernsey, which as a result has rightly acquired a reputation for strong corporate governance.
Domiciling (and for that matter administering) a fund in Guernsey, particularly for investment managers in the UK, is also made easier by the Island’s convenient location. Situated between Europe and UK it is in a time zone that allows business to be conducted with both the US and the Far East during the same day. Travelling to the Island is quick and easy as there are frequent air and sea links to both Europe and the UK, with flights from London taking less than an hour. In addition, an extensive array and high volume of business can be carried out face-to-face and in a short amount of time because of the close proximity of key institutions and businesses on the Island. Guernsey is therefore an ideal one-stop shop for funds.
Simpler and quicker
The Guernsey Financial Services Commission (GFSC) has grown a reputation for robust yet pragmatic regulation and further evidence of this policy (and its success) is being witnessed at the moment with the new registered closed-ended funds regime. Indeed, already 32 such funds have been given consent by the GFSC since its introduction on 1 February this year.
The ‘registered fund’ regime streamlines the consent process – making domiciling funds in the Island simpler and quicker – by shifting the burden of responsibility for reviewing the promoter and the investment manager and the prospectus or admission document from the GFSC to the proposed Guernsey licensed fund administrator.
This is a development of the approach taken by the Commission in respect of Qualifying Investor Funds (QIFs), the self-certification regime which enabled shorted authorisation times for funds targeting experienced investors and has its origins in the root and branch review of investment sector legislation that was conducted by a working party under the stewardship of leading Guernsey advocate Peter Harwood. It made a series of recommendations to enhance the environment for conducting funds business in the Island, including the categorisation of funds into ‘regulated’ and ‘registered’ funds, and the remainder of which will come on-stream later in 2007 and into early 2008.
The right conclusion
Guernsey’s fund is thriving and the indications are that the upward trends we have been experiencing will be sustained throughout the rest of 2007 – pushing us towards the seminal £200bn mark. I believe that these figures illustrate above all else the way in which increasing numbers of fund promoters and sponsors are recognising the strength of Guernsey’s offering. However, I would also emphasise that we are not resting on our laurels and are continuing to promote the Island as a leading funds domicile while also enhancing the environment for conducting business.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com .
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