Originally published in Corporate INTL, July 2009
The evidence of Guernsey's success in the investment funds sector can be seen in the depth and expertise to be found in its support services and the positive reaction to its funds regulation displayed by that support sector, including administrators. The Bachmann Group has operations in Guernsey, Switzerland, the UK and New Zealand. It has had a presence in Guernsey since 1974 and offers administration services to a range of different funds.
New regimes and the rise of alternative investment funds
Paul Duquemin, managing director of Bachmann Fund Administration Limited, says the registered funds regime has been instrumental in attracting closed ended funds, which tend to be alternative funds, such as private equity or property funds. He believes the lack of liquidity and investor activity in the public markets has reduced the popularity of open ended funds.
Figures from Guernsey Finance back that up, showing that closed ended funds are up 20% to the end of 2008, with 624 funds holding assets of £90 billion.
Mr Duquemin said: "I think the registered fund regime has been a factor to explain the popularity of closed ended funds over open ended, combined with the market during the last 12 months. Liquidity of the underlying asset has always been a key factor to determine open or closed ended and I think we all know the problems open ended property or alternative asset class funds have been faced with this last year."
He added: "Some statistics tell a tale; Guernsey ended 2008 with 50 more closed ended funds over the year, of which 16 are property funds. As for Unit Trusts they still make up 8% of closed ended and 21% of open ended funds whereas five years ago they represented 14% and 31% respectively. Unit Trusts are undoubtedly less popular than they once were."
The success the island has had in putting together a regime to attract alternative funds has had an impact on administrators such as The Bachmann Group.
Mr Duquemin said: "Guernsey has become a specialist jurisdiction for private equity vehicles, as well as hedge funds and real estate funds. This is shown by the number of heavyweights in the private equity space that have found the island an attractive place to do business. At Bachmann we administer schemes investing across a wide range of asset classes, however, for us, growth in property funds under administration during the last few years has far exceeded the more traditional asset classes of equities or fixed income. We have recently assisted with the launch of funds investing in student accommodation, ground rents, UK farmland as well as the more commonly found listed overseas property funds."
Administering non-domiciled funds
Most of the non Guernsey Schemes administered in Guernsey are Cayman or BVI entities and Mr Duquemin believes there are a number of factors influencing promoters of non-Guernsey schemes to have their funds administered in Guernsey.
These include being in a convenient location close to the UK & Western Europe and in a time zone between the USA & Asia.
He said: "The convenience of the location makes it logistically easier for the fund manager and board to exercise management and control in Guernsey. Guernsey has a reputation for political and fiscal stability, a well educated workforce working in a mature industry that has been administering funds for more than 40 years. Last but certainly not least it has a reputation for being a well regulated finance centre with robust standards on corporate governance."
Preferential tax treatment
Guernsey's tax system allows for no withholding tax on income or dividends from a Guernsey registered fund plus no VAT or capital gains tax.
This is one of the more attractive features of the island for investors and fund managers alike, but it must be considered in conjunction with the tax consequences in the investor's home country.
Mr Duquemin said: "Understanding who the investors in the fund are going to be and their personal tax situation is critical at the outset of setting up the fund. Therefore it is essential that professional tax advice is sought from the beginning as this will often be one of the fundamental factors influencing how the fund is structured. The focus will be not only on the tax treatment of the fund vehicle and the underlying assets, but the tax treatment at investor level (i.e. how the returns investors receive from the fund will be taxed in their home domicile). Any funds repatriated will be subject to the investors own tax regime much the same as if they were invested in an onshore fund or a UCITS III vehicle. The Tax Information Exchange Agreements and its resultant inclusion on the OECD White List, demonstrates that Guernsey is a transparent and cooperative jurisdiction."
The growth of outsourcing
The growth of Guernsey's fund industry has led to greater volumes of work and more demands on administrators. The ability to outsource some of the more labour intensive areas of the administration process is an important aspect of the industry's growth.
Mr Duquemin says outsourcing all, or part, of the fund administration service has certainly seen significant growth during the last few years supported by a flexible outsourcing regime by the regulator who regards oversight as the key control.
He said: "Bachmann is an independent administrator, headquartered in Guernsey, that offers a tailored service ranging from full service administration through to a part outsourcing model using partners in other jurisdictions. In some instances we may even outsource certain activities back to the client if they have the necessary skill set and satisfy our oversight controls."
He added: "Having this flexibility of servicing options is important to us in meeting the requirements of our clients and means that we can, for example, administer schemes where the more labour intensive elements of administration can be outsourced to other jurisdictions."
For more information about Guernsey's finance industry please visit www.guernseyfinance.com .
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