Originally published in the HFM Week, Guernsey Report, June 2008
Considering the recent record-breaking growth of the market, Patrick Firth of Butterfield believes fund administration will remain a valuable part of Guernsey's economy
Assuming expectations for the world's financial sectors were that the start of 2008 should coincide with stunted capital flows, then Guernsey's funds industry clearly isn't one to conform to type. Recent statistics released by the Guernsey Financial Services Commission (GFSC) for the end of March have placed the total value of funds under management and administration in Guernsey at a new record high of £203.8bn; an impressive growth rate of 14.4%.
Butterfield Fund Services Limited (Guernsey) – aided by the robust jurisdiction in which it operates – has enjoyed a similarly buoyant period. The company is part of the Butterfield Bank Group in Guernsey, an organisation that employs approximately 250 people, and its role is that of a third party fund administrator.
Speaking to HFMWeek, the company's managing director, Patrick Firth, discusses Butterfield's prosperous relationship with Guernsey's funds sector and examines how each side has contributed to this story of success.
HFMWeek (HFM): How has Butterfield's vision changed since first becoming a Guernsey resident?
Patrick Firth (PF): The company has been in Guernsey for a little over 16 years. It has been seven years since we took over Guernsey based CIBC Fund Managers and four years since moving to our existing premises. Growth has been substantial over the last few years.
We originally started by focusing on non-Guernsey funds, typically administering Cayman funds from Guernsey under the non-Guernsey scheme rules. Being a Bermuda-based bank, these beginnings are very much part of our heritage.
Just prior to when I joined – I have been with Butterfield for six years now – we started to focus more on regulated Guernsey schemes, typically B schemes, and more recently on an increasing number of closed-ended funds, institutional closed-ended funds and alternative funds, such as property funds. This transition came about by capitalising on the opportunities that arose in the marketplace. It was a natural progression.
HFM: What services does Butterfield offer that sets it apart from similar operations?
PF: We offer a customised service rather than a specific commodity service. Being part of a large banking group, we can offer services through our sister companies that would be otherwise unavailable; services such as custody, banking, treasury and lending.
Typically, a lot of the clients that we deal with will be looking for services across the group rather than purely fund administration, for example we work with a number of family offices where they are looking for a broader suite of service than purely fund administration.
Butterfield also administers a wide range of different types of fund. We don't focus on a particular sector; we don't just focus on private equity or hedge funds for instance. Thanks to this broad range of skills, our general business experience has become equally wide-ranging. As a result, when a family office has a number of different types of fund it requires services for, we can offer solutions for all.
HFM: Is this kind of diversification typical of Guernsey?
PF: While there have been Guernsey-based fund administrators that focus purely on the closed-ended sector and others that have typically looked more at the open-ended funds, generally, Guernsey has always been open for businesses across a wide range of categories. This is not to say that administrators don't specialise – some focus on private equity or on closed-ended vehicles for instance.
Butterfield is proud of the range of different types of fund that we administer. There are others on the island that operate on a similarly broad basis, yet we will also offer fund administration if somebody chooses to do their banking with another organisation or custody with someone else. We will accommodate clients and, if their preference is otherwise, won't insist on using our sister companies.
HFM: What is it that makes Guernsey so well suited to Butterfield and its clients?
PF: Guernsey is a well-regulated jurisdiction with the approach of the island's regulator always having been very pragmatic. There have been regulatory developments over the last few years that have very much reflected the responsiveness of the regulator to the requirements of the industry.
There was the introduction of qualifying investor funds which allowed a guaranteed three-day turnaround and subsequently the introduction of registered closed-ended funds, and there has been the Harwood review of the fund sector. Guernsey also benefits in terms of its time zone which, considering plenty of Butterfield's business is spent administering non-Guernsey Cayman schemes with European investors, is an important consideration. For instance, we are effectively halfway between the US and Hong Kong, and as we have a range of clients across the world, serving a worldwide base is much easier.
Its proximity to London, for UK-based clients and, indeed, to Europe for the increasing number of European and Middle Eastern clients is also a great help. There are regular flights to the UK. On top of this, Guernsey's infrastructure is strong – not only the administration sector but the lawyers and accountants who are all well-established and very experienced.
HFM: How much has Butterfield's approach changed as a result of the credit crunch?
PF: Because we administer a wide range of fund types the impact on our business has not been particularly significant. The fact that the industry has passed the £200bn mark – according to the GFSC's recent figures – clearly demonstrates that business is booming. There is still an increase in funds under administration and that's pleasing to see.
It is obviously a bit too early to tell for sure, and I certainly don't want to speak for other sectors of the finance sector, but it looks as if the island's business tradition of administering diversified funds is going to see us continue to flourish.
HFM: How do you expect Guernsey's funds industry to develop over the next 12 months?
PF: Considering the latest figures, expectations are high, though, that's perhaps not particularly surprising: Guernsey's funds industry has always been well-regulated, well-respected, and innovative. All you need to do is look back over the introduction of open-ended investment companies – introduced ahead of other jurisdictions – the introduction of PCCs, and the regulatory changes that have gone through over the last few years, to see that the island aims to stay ahead of the game and change with the times. The regulator remains in touch with its space; and its approach is one reason to believe fund administration will continue to be a valuable part of the economy.
I've been in the industry for a number of years and, while I don't have a crystal ball, there's nothing on the horizon that is giving me great cause for concern.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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