Guernsey: The Natural Home For Private Capital

Last Updated: 29 August 2019
Article by Guernsey Finance

Most Read Contributor in Guernsey, October 2019

In a contribution to HFM's Guernsey 2019 Special Report, Walkers Partner Kate Storey explains why Guernsey is perfectly positioned to support the rise of private capital.

The term 'private capital' can be used to refer to the nature of the investor, namely family offices, high-net-worth individuals, private banking clients and other non-institutional investors, and it can also refer to the nature of the investment, i.e. investment in private companies as opposed to publicly-traded companies, although the term encompasses much more than just private equity these days. This article looks at trends in the global private capital industry, principally the coming together of private investors with private equity and other private asset investments that have traditionally been the mainstay of institutional investors, and how Guernsey is the natural home for the bespoke structuring required for private capital investments.

Recent research by Guernsey Finance, the marketing agency for the Guernsey financial services industry, showed two trends:

  • The significant rise of private capital in private equity and other alternative investments; and
  • Investment managers are being seen as a gateway to direct investment opportunities for private investors.

Guernsey, as a longstanding leader in the private wealth and alternative investment fund sectors, is facilitating and catering for these private capital transactions through its choice of bespoke investment structures and the quality of the on-island service providers supporting those structures.

A further trend being seen in the private capital world has led Preqin, the UK company which provides market data on the global private capital industry, to redefine its sector terminology earlier this year. Whereas it formerly used the term 'private equity' as the generic term for all private asset classes, that has now been confined to the core asset class centred on the buyout and venture capital industry, together with other closely related strategies.

'Private capital' is the generic term it now uses to refer to the range of private closed-ended funds, including private equity, private debt, private real estate, infrastructure and natural resources – reflecting the wide choice of private capital funds, of which private equity is the most established sub-sector, but these days not necessarily the fastest growing.

At Walkers in Guernsey we are seeing a particular uptick this year in LSE-listed Guernsey private debt funds and technology funds, which is testament to Guernsey's leading position in the listed private capital funds space, having more LSE-listed entities than any other jurisdiction, other than the UK itself.

Some commentators also foresee a blurring of boundaries between private debt and private equity funds, resulting in a new hybrid asset class giving investors exposure to both asset classes in a single [listed] fund. Guernsey already caters for diverse asset classes within a single umbrella vehicle with its protected cell company (PCC) structure, which it pioneered in 1997.

Different asset classes can be held in separate 'protected cells' within the PCC structure, such that the assets and liabilities attributable to each cell are legally segregated from those of the other cells and the 'core' of the PCC, but with central management of the overall umbrella structure, which is a single legal entity.

The trends identified by the Guernsey Finance research

1. Reasons for the rise in private capital and how Guernsey facilitates private capital investments:

Since the global financial crisis, private wealth has doubled in nominal terms. According to the Boston Consulting Group, Global Wealth Report 2018, global personal financial wealth grew by 12% in 2017 to break through the $200trn barrier. These high-net-worth private investors are increasingly looking for portfolio diversification away from the volatile equity and bond markets towards private equity, real estate and debt investments, which have often offered better capital preservation and returns than public securities in the past decade. At the same time, there are more private equity opportunities available, as many companies are staying private for longer, rather than rushing to a stock market flotation.

According to the research by Guernsey Finance, private capital can now amount to as much as 75% to 100% of assets under management, particularly for smaller/first-time managers. Guernsey has always been a perfect incubator for first-time managers, being outside of AIFMD until third country passporting is introduced, but offering the option to be fully AIFMD compliant from set up and to avail of Guernsey's Manager-Led Product – a fast track regime for establishment of investment funds under which regulatory rules are only applied against the manager, not the individual funds. Guernsey also offers managed fund platforms, whereby a new promoter can utilise a cell in a managed protected cell company structure to pursue its own investment fund and investment strategy through that cell, whilst benefiting from the track record of the Guernsey manager.

Complementing its thriving private wealth sector, Guernsey has unrivalled experience and expertise as a home for private equity and other alternative investment funds of all asset classes, as well as LSE-listed private funds. For private wealth managers, Guernsey offers the perfect fund structure for bringing together clients for investment in private assets – Guernsey's Private Investment Fund (PIF) is a product that is regulated by the Guernsey Financial Services Commission (GFSC), but subject to lighter touch regulation than other Guernsey funds on the basis that the manager makes a declaration to the GFSC as to the ability of the investors to sustain the loss of their investment (at the time of subscription); however, there are no prescribed requirements on the type of investor, their net worth or minimum subscription. The PIF is a fast track product which will be registered by the GFSC withinone business day of receipt of the application. It can be marketed into the UK/EU under the national private placement regimes. Like all Guernsey funds, the Pif offers a tax neutral investment vehicle and reduced costs compared to the likes of Luxembourg due to not being subject to full AIFMD compliance.

2. Trend for direct investment by private capital investors:

The Guernsey Finance research showed that investment managers are being seen as a gateway to direct investment opportunities for private investors. This is backed up by a recent Financial Times article – Why the wealthy are investing directly in private companies; Special Report FT Wealth: June 2019 – which reported wealthy individuals are increasing their allocation to private equity through means other than standard funds, including via co-investment deals with fund managers and asset by asset deals (e.g. club deals). Reasons given for this trend include:

  • Some private investors are themselves entrepreneurs or private equity or hedge fund professionals and understand the risks and challenges involved in the early stages of growth
  • Private companies value the access to the expertise and connections of the investor base
  • As a direct investor an individual can get involved in the business and help shape its strategy
  • Investors not wanting to pay the management fees of private equity funds.

Guernsey offers a choice of investment structures for the bespoke structuring requirements of these private capital investments, whether it be the traditional private equity structure of the general partner/limited partnership; a unit trust for tax transparent real estate investment; or a PCC for deal-by-deal investments, for example. For that increasing number of private investors who want to be involved in the management of their investments, Guernsey's limited liability partnership, a tax transparent structure which facilitates ownership and management, may be appropriate. All of these Guernsey structuring solutions can be rapidly established and are serviced by GFSC regulated service providers.

An original version of this article first appeared in the HFM Guernsey 2019 Special Report. To access the full report, click here.

For more information about Guernsey's finance industry please visit www.weareguernsey.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions