The European Union Commission draft Directive on Alternative
Investment Fund Managers
Guernsey's investment fund industry is paying close
attention to developments with respect to the draft EU Directive on
Alternative Investment Fund Managers (AIFM).
The imposition of a trade barrier is not a desirable outcome of
the intention to ensure that fund managers are appropriately
regulated. For this reason, and because of the adverse reaction
from the investment management community not just in the UK but in
a number of other EU member states and significant trading partners
such as the US, we in Guernsey, along with many other commentators,
believe that it is unlikely to come into force in its current
However if it is implemented in its current form, which is a
worst case scenario, what are the options open to Guernsey?
Guernsey is a well regulated jurisdiction with nothing to fear
from compliance with this legislation.
One option is therefore to be patient, ensure compliance with
the requirements of the legislation, and in the meantime lobby for
equivalent status to be achieved as soon as possible to enable
Guernsey investment funds to continue to attract EU investors.
Of course the island's investment fund community doesn't
survive entirely on funds distributed to EU investors. If the EU is
determined to prevent small jurisdictions competing fairly with the
EU, then Guernsey could become the fund domicile of choice for
promoters to attract non EU investors.
Promoters from the US, Switzerland, South Africa, and the Middle
East are already active in Guernsey, setting up investment funds
for distribution to investors who are not necessarily resident in
The island is becoming increasingly popular as a domicile of
choice for the administration and custody of non-Guernsey schemes,
many more of which will be forced to move from within the EU if the
Directive comes into force, which is one potential silver lining to
the EU's latest cloud.
The Directive currently doesn't capture investment managers
who have less than 100 million Euros under management, or 500
million Euros where funds have a lock-in period of five years or
more and no leverage.
Again Guernsey is an excellent place for new fund promoters to
launch new funds because of the real expertise on the island, its
accessibility, time zone and infrastructure. Because of the
attractive fiscal climate a number of fund managers have actually
relocated to Guernsey.
As a last resort Guernsey could apply for membership to the EU.
Locally this would be quite a controversial move, but perhaps it
would place us on a level playing field allowing us to compete with
comparable jurisdictions such as Luxemburg and Dublin.
What is the most likely outcome?
Guernsey is a dynamic, proactive and responsive jurisdiction
which has established a track record of meeting internationally
recognised regulatory standards.
It is now widely expected that the draft EU AIFM Directive will
undergo significant changes before it can be implemented. If
introduced I expect that Guernsey will have the opportunity to be
acknowledged as an equivalent jurisdiction by the EU soon after the
Directive has been implemented.
However this does not mean that Guernsey's funds industry is
complacent or of the opinion that this Directive is beneficial, it
is just that we are confident that we can overcome whatever
obstacles to competition are put in our way.
And now my favourite bedtime story- Goldilocks and the
three fund jurisdictions.
Goldilocks Capital Partners is a fund promoter looking where to
domicile her next alternative investment fund. First she tried the
EU, but there was too much regulation and she decided it was too
hard. Next she tried the Caribbean jurisdictions but there
wasn't enough regulation and she decided it was too easy.
Lastly Goldilocks investigated the possibility of forming a new
fund in Guernsey and discovered that there was less red tape than
within the EU but enough regulation to satisfy investors that the
investment fund industry in Guernsey is appropriately regulated.
She decided that it was just right.
Joe Truelove is Head of Business Development Guernsey in
Kleinwort Benson's Corporate Clients department. Joe is a
Chartered Accountant, a member of the Securities Institute and a
member of the Society of Trust and Estate Practitioners.
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