During the last few years a large section of the European private equity community has been focused on the European Union's (EU's) drive for increased regulation, principally through the Alternative Investment Fund Managers Directive (AIFMD).
Speaking to promoters and investors further afield it is quickly apparent that AIFMD has been less of a pressing issue however, when they discover that it means a growing compliance burden and therefore increased costs then they are instantly more cautious about raising money from within Europe.
The Guernsey model
Yet, rather than being part of the problem, Guernsey is part of the solution because while the Island is in Europe geographically, it is not in the EU and therefore, has not been required to implement AIFMD.
Guernsey has introduced a dual regulatory regime whereby it is possible to continue to distribute Guernsey funds into both EU and non-EU countries. The approach means managers and funds with no connection to Europe can still use Guernsey's continuing regulatory rules which are completely free from the requirements and costs associated with AIFMD.
For managers wishing to market into Europe, Guernsey provides a European platform but one which is not actually in the EU. Indeed, the National Private Placement (NPP) route is being favoured by many as it means little or no change to how things were done before AIFMD. For those managers with elements of EU and non-EU business, parallel structures can be utilised. It will be possible to place non-EU business in a parallel or feeder structure for which AIFMD compliance would neither be required nor necessary. Guernsey also has a new opt-in regime which is fully AIFMD compliant for those who require it.
The point is that Guernsey's dual regulatory regime provides optionality that allows clients to be serviced in the manner most appropriate to their specific circumstances.
Substance
Guernsey has significant substance already present within many existing structures and professionals with expertise in portfolio and risk management. Corporate governance is enhanced by having a significant pool of experienced non-executive directors.
Global private equity houses Apax, Apollo, BC Partners, Coller Capital, HarbourVest, Pantheon and Permira have their funds domiciled and serviced in Guernsey (with a number also having offices and staff present).
Guernsey has administrators and custodians ranging from major international names, such as Northern Trust and State Street, to specialist independent private equity service providers.
Global reach
Guernsey's funds industry now manages and administers more than 1,000 funds valued at nearly half a trillion US dollars, with the net asset value of private equity funds increasing 123% over the last five years. Guernsey domiciled investment funds are distributed to all corners of the globe. The first Chinese currency focused bond fund, the Renminbi Bond Fund was established in Guernsey in 2007 by Stratton Street Capital LLP as an open-ended fund in a Protected Cell Company (PCC) structure. It is listed on the Irish Stock Exchange. Quality of service in Guernsey is evidenced by the fact that our providers now service $140 billion worth of open-ended funds which are domiciled in other jurisdictions where there may be local substance challenges.
Guernsey's strong ethos of corporate governance is also demonstrated through its position as a centre for listed vehicles; the two largely go hand-in-hand as companies are subject to and adhere to the rules applicable to the various international stock exchanges on which they list. Guernsey acts as a gateway to list vehicles on stock exchanges around the globe, including, among many others, the local Channel Islands Securities Exchange (CISE), exchanges in Frankfurt and Amsterdam, the Hong Kong Stock Exchange (HKEx) and the London Stock Exchange (LSE). LSE figures show that there are more Guernsey entities listed on its markets than from any other jurisdiction globally (ex-UK).
Conclusion
Non-EU managers, including many from Asia, are of the view that regulation is making it especially difficult to market funds into the EU. Guernsey offers a solution based in a European time zone with access to the EU market but without the administrative and cost burden of AIFMD and from a jurisdiction which has significant substance, high standards and a global reach.
An original version of this article was published in Asian Venture Capital Journal, November 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.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.
