This was originally published as sponsored editorial in FT Mandate, December-January 2007-2008.
Since 2000 Guernsey has been growing its reputation as a leading private equity domicile. However, events of the past few weeks and months have really crystallised the fact that the Island is now the jurisdiction of choice for private equity.
The latest statistics released by the regulator, the Guernsey Financial Services Commission (GFSC), show that overall fund business in Guernsey grew by £8.9bn (5.7%) in the three months to the end of September despite significant market turbulence during the quarter. That took the total value of funds under management and administration to a new high of £164.5bn an increase of £44bn (36.5%) year on year.
The value of private equity funds trebled between the end of 2002 and the end of 2006 and by the end of September this year there were 226 such funds with a total value of £28.4bn up £8bn (40%) in the first nine months of 2007 and £2.4bn (9%) during the third quarter alone in spite of the credit crunch.
These impressive figures have also been backed up by third-party endorsements from the likes of leading City of London lawyer, Bridget Barker of Macfarlanes. Speaking at a major Institute of Directors event on the Island she asserted that Guernsey was "the jurisdiction of choice for private equity."
This was still being digested when Jon Moulton, Founder and Managing Partner of Alchemy Partners and who now lives in Guernsey, told a local lecture lunch that the Island was "a terrific place in which to do business."
It is also understood that Terra Firma will soon be opening an office in the Island.
These ringing endorsements come on the back of Guernsey listed fund transaction, KKR Private Equity Investors LP, from Kohlberg Kravis Roberts & Co, raising more than US$5bn before being launched on Euronext Amsterdam. It subsequently won Equity Deal of the Year at this years International Financial Law Review (IFLR) European Awards.
Following on from KKR there have been other notable Guernsey private equity funds, including the largest central European buyout fund in excess of ¬1bn Mid Europa III LP; Valdivia Private Equity Fund; Energy Ventures III; AA Development Capital India Fund a joint venture between Ashmore and Alchemy; and EQT V Limited (Clifford Chance) which raised ¬4.25bn.
This body of evidence is just the tip of the iceberg but it clearly illustrates Guernseys credentials as a jurisdiction of choice for private equity the Island is a private equity success story.
Kerry-Anne Morley, Managing Director, Augentius Fund Administration (Guernsey) Limited, a specialist Private Equity, Infrastructure and Property Fund administrator, said: "The industry is booming in Guernsey and there does not appear to be any slow down in market conditions. We also offer a full offshore service including compliance and corporate governance service. The growth of the industry has been such that our Global funds under administration have grown to over $50bn in the 5 years since our formation.
"In addition our new business pipeline is stronger then ever. We have numerous funds launching between now and the year end some in excess of $1bn. Other funds are lined up for an early 2008 launch and these include funds in excess of ¬10bn."
She went on to comment that the current lending conditions do not appear to be slowing down business. Larger clients are switching their existing facilities to the new products they are launching. Smaller clients are having to negotiate more with their Bankers but are still finding the finance they need to do deals and in any event in the mid and small cap markets many deals are done without the need for large credit facilities.
Mike de Haaff, chairman of the Guernsey Investment Funds Association (GIFA), said: "Even putting aside the tax neutrality of the island, our success in private equity is down to the intellectual property that has built up, the experience and infrastructure now on the island in not only setting up these products but also in their administration. Guernsey has a long-established expertise in this area.
"The majority of the business still comes through lawyers in London and it is a known fact that people come to Guernsey for private equity. Word of mouth is a big factor in the relatively small private equity community. Its recognition that we have everything in place and are well placed to set up these products.
"Also in the private equity arena, as with many other products now, management control issues and corporate governance are more to the fore and we are very conveniently located for directors to get on an aircraft to Guernsey for board meetings on the island."
Connie Helyar, Executive Chairman of International Private Equity Services Ltd, and one of Guernseys most experienced private equity administrators, agreed:
"I have been involved in this sector since the early 1990s. At around that time Guernsey was given a huge kick start by elements of the regulatory regime elsewhere. This gave Guernsey the opportunity to earn itself a global name for private equity to forge ahead.
"London lawyers tend to drive the business where they want it to be and we have a lot of experience here in Guernsey. Its also relationship-driven; its about people doing business with people they know.
"The more business you undertake and the more global you are spread, the more experience you have over a much wider basis. At IPES the business spread is from Mexico to Russia; from Eastern Europe to Scandinavia and we have to understand how the regime works in each of those countries.
"Guernsey still has the edge on expertise. This year has been incredibly busy and we dont see any slow down. Traditionally the investment period is five years for a fund; in the last couple of years it has reduced to two years so everything has sped up accordingly with new funds being raised quicker than ever.
"While interest rates and inflation remain relatively low I think there will always be private equity investment around."
For more information about Guernsey's finance industry please visit www.guernseyfinance.com .
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