Originally published in Hedgeweek, Guernsey Hedge Fund Services
2009, distributed June 2009
Andrew Walters, Partner, and James Clyne, Associate,
from Ozannes take a look at Guernsey's regulatory environment
in respect of hedge funds.
The global economic downturn may have caused investors the world
over to tighten their purse strings, but many fund promoters have
seized the opportunity to capitalise on the opportunities offered
by the new economic environment.
Guernsey has long been regarded as a well-regulated financial
centre and has sought to achieve the right balance between investor
protection and business efficacy. By applying sensible regulatory
principles, the island's regulator has been comfortable
authorising hedge funds and funds of hedge funds. Despite the
losses suffered by many hedge funds last year, legitimate financial
projects offering investors an opportunity to spread risk and
diversify their portfolios are still welcomed by the Guernsey
Financial Services Commission.
Significant weight has been attached to Guernsey's presence
on the 'white list' of jurisdictions that have met the
internationally agreed tax standards set out by the Organisation
for Economic Co-operation and Development. This list was published
Guernsey has decades of experience in providing fund products,
and its fund industry is capable of managing and servicing a wide
range of alternative investment products.
Examples of such products already domiciled in Guernsey include
the Bluecrest AllBlue Fund, Marshall Wace's MW TOPS (at launch,
the largest publicly-traded closed-ended European hedge fund) and
FRM's Absolute Alpha Fund PCC.
The growth of hedge funds in Guernsey has been encouraged by the
regulator's relaxation of the rules governing funds that target
institutional or expert investors, including its willingness to
waive its usual requirement that open-ended funds appoint a
Guernsey-resident custodian where a prime broker regulated in an
acceptable jurisdiction and with substantial net worth is
appointed. The GFSC will not require a prime broker to undertake
formal oversight of the fund manager, and is prepared to relax the
requirement for physical segregation of the fund's assets from
The regulator has recognised that some types of funds, including
both hedge funds and funds of hedge funds, may have difficulty in
determining net asset values promptly where time is needed to
establish the value of particular assets within the portfolio, such
as underlying funds, which can also raise an issue when their
valuation dates differs from that of the fund of funds.
The GFSC is prepared to allow preliminary estimations in such
situations. As a result, subscription monies could be accepted
before the final number of shares to be allocated is determined,
and interim redemption monies paid out of a fund subject to final
adjustment once NAV is ascertained.
Another area of innovation in Guernsey has been the introduction
of Registered Funds and Qualifying Investor Funds. These categories
of fund have further streamlined the approval process for both
open-ended and closed-ended funds by offering fast-track GFSC
registration within three working days of receipt of the requisite
documents. The onus falls on the Guernsey fund administrator to
conduct due diligence on the fund's promoter and structure, and
to certify to the GFSC that the proposed fund satisfies
The regulator has adopted a pragmatic and flexible approach to
hedge funds, rather than the more dogmatic approach found in many
other jurisdictions. Guernsey's proximity to European financial
centres, its reputation for stability, strong corporate governance
standards and flexible regulation are all factors that are set to
help the island continue to flourish as a domicile for hedge funds
and funds of hedge funds.
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