Originally published in Investor Services Journal,
Volume 5 No. 33
Writing in Investor Services Journal (ISJ) earlier this
year I commented how Guernsey's funds industry was continuing
its strong performance despite the changed global economic scene
with the sub-prime crisis and its fallout. I was confident that the
Island was well placed to continue in such a vain, although only
time would tell.
Six months later and performance remains robust despite the
difficult market conditions created by the credit crunch. The
latest figures from the Guernsey Financial Services Commission
(GFSC) show that overall funds business reached a record
£207.2bn at the end of June – up £3.4bn
(1.7%) over the second quarter of the year and up by £51.6bn
(33.2%) from the same time in 2007.
Traditional funds remain well represented among our flows.
However, the major growth continues to be in alternatives such as
funds of hedge funds and particularly private equity, as well as
more esoteric asset classes. This shift has included the emergence
of new investment schemes such as distressed debt funds and
distressed property funds and the indication is that the move to
niche asset classes will continue during the credit crunch.
Guernsey firms have responded by developing their capabilities to
facilitate the more difficult administration of these funds
– examples include the use of an off-Island centre of
excellence within a large group or by establishing a specific
operation outside the Island.
Today, world-renowned managers, for example, Investec and
Dominion (retail), EQT and KKR (private equity); Kenmore and
F&C (property); and Man and Fauchier (hedge funds/funds of
hedge funds), have the operation of their funds facilitated in
Guernsey. During the last year or so there has been the addition of
BNP Paribas, Capita and Citco to the significant list of
administrators in Guernsey, which already included boutique
providers such as IAG and Bourse, as well as globally recognised
names like Northern Trust, HSBC, Royal Bank of Canada and State
Street that also offer custody services. The number of fund
managers based on the Island is also expanding and now includes
major private equity players Terra Firma and Permira, plus more
recent arrival Odey Wealth. In addition, the Channel Islands Stock
Exchange (CISX) has seen continued growth and now has more than
2,800 security listings.
While we are still seeing funds business coming into the Island,
flows have slowed during the past few months. This reflects the
fact that there is still a lot of international corporate wealth
out there looking for a structure – and that is what we
in Guernsey are so experienced and skilled at catering for
– but there is a lack of confidence in the wider markets
to put the business into place.
It is this fragile confidence that has slowed the growth of our
funds business but in some respects this has been beneficial
because it has given us all a chance to take stock. For example,
industry practitioners have been able to make sure that service
levels on the substantial business that has been taken in over the
past few years are as high as possible.
In addition, it is an opportunity for time to be spent on
initiatives which will build on recent developments such as our new
'fast track' registered funds regime, new company law and
new company registry and introduction of a zero rate of corporate
tax as standard. Now we are looking to establish a specific regime
to attract hedge funds. On top of this we are talking with key
decision makers in London about what else we might do to make
ourselves even more attractive as a place to do business.
Guernsey Finance is also stepping up its promotional and
marketing activities. In October we will be hosting the Guernsey
Funds Forum in London – which is our principal source of
business – and following this up with a private equity
funds dinner debate in Edinburgh. We are also starting to refine
our plans for targeting the Zurich/Geneva, US and Middle East
markets in 2009. All of this is additional to further developing
the jurisdiction's brand in China.
The right conclusion
It is this marketing and promotional activity alongside the
continued development of attractive products and pragmatic
regulation that is helping sustain new flows into the Island during
the difficult market conditions while also ensuring we are ready to
go when confidence returns and business levels increase.
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