In today's challenging market, a proven, tested route to placing private funds can be the difference between success and failure of a fund launch.
As the UK and the European funds industry faces up to the impact of Brexit, now just days away, the continued strength of Guernsey's market position remains clear.
In the context of seeking certainty and stability in terms of how things are done, nothing changes for how Guernsey operates and how a Guernsey fund will be marketed in the EU. Or into the UK for that matter. Brexit makes no difference to how to market Guernsey alternative funds. Marketing a UK AIF into EU after 1 January for example is a whole new experience. Why not stick with tried and tested?
UK fund lawyers have said that they believe Guernsey remains in an ‘incredibly strong position' and arguably ‘light years ahead' of the UK in terms of market access.
Since Brexit there have been very few managers establishing new funds in the UK who have not used the UK before. As I write, the UK is currently without a memorandum of understanding with Europe to enable marketing from the UK on a private placement basis, so distribution from the UK could present a challenge which does not apply for Guernsey.
There are a number of other reasons to have comfort in Guernsey as jurisdiction for funds.
The single most important factor is for the fund to be simple, robust and universally appealing to investors.
Guernsey is globally recognised as being user friendly, robust and well-serviced from a regulatory and legal perspective.
The development of economic substance requirements has also served Guernsey well – leaving Guernsey more strongly positioned, and arguably helping the island to overcome perceptions of being less EU friendly – despite there being no legal and regulatory basis for that argument.
These topics were addressed by an expert London-based panel at our Distributing Private Funds webinar.
Why Guernsey?
Wilf Wilkinson, Managing Partner at European placement agent Acanthus
We like to recommend Guernsey to our clients, as somewhere where service-provider costs are transparent, fair and good value for money. I do think that that is important, as other jurisdictions can be famously tricky in terms of in terms of getting a fairly priced and high quality service.
Leith Moghli, Partner in the Private Funds Group at law firm Proskauer Rose
What you find when you go to Guernsey is that the regulatory regimes, the fund structures and the fund products available are highly bespoke and very capable of addressing the varying needs of different managers from first-time funds, right through to the big asset managers.
The familiarity and robustness of the regulatory framework is key. And what Guernsey offers is the ability to be very targeted and tailored in what you put in place there.
With Guernsey you don't have to take the “one size fits all” approach, you can actually go and get exactly what you need, the service providers are highly specialised and highly sophisticated.
The first-time manager challenge
Leith Moghli
For a fund manager, undertaking a fundraising for the first time is a gargantuan undertaking. It's often a year or more of somebody's life flying around the world and so the focus has to be on simplicity and speed, you don't want complexity and don't want to have to think about a host of other challenges. Often people come to me with preconceptions as to where their fund needs to be, and I guess the first thing I do is challenge, I tend to challenge my clients – what is it you're trying to achieve? And then, what's the best jurisdiction to achieve that?
Simon Begg, co-Founder of fund manager Corten Capital
Keeping this as simple as possible when there's an awful lot of other things going on at the same time is definitely worthwhile, so the fact that a lot of other managers have set themselves up in Guernsey, where there is well-developed frameworks and a regulator who's used to dealing with it, and advisers who have done it multiple times before, is really helpful.
In addition you see that LPs are familiar with Guernsey and how it works, so you're just taking some friction out by going down a well-trodden path.
Having a good placement agent and good lawyers can make a massive difference.
If you can create some incentive or momentum to try to get the fund over the line, that can be very helpful, and getting a handful of good investors in early can act as a real momentum builder. And you need to make sure you tell your story well, and clearly.
Wilf Wilkinson
With Guernsey, you're marketing something that's very familiar and well established from a structural perspective. When you're marketing a new fund, ideally the aim is to have as little questioning or issues as possible over structure, domiciliation, and so on.
Our experience is that when you have a simple, recognised Guernsey structure, you get very little questioning because it's familiar, well understood and well regarded.
Brexit
Wilf Wilkinson
Brexit will make no difference to how Guernsey funds market across the EU as it will continue to be based on the National Private Placement Regimes. And I'd say that currently, in the context of seeking certainty and stability in terms of how things are done now versus how they may be done in as little as two months' time, nothing will change with how Guernsey operates and how you market a Guernsey fund within the EU.
Leith Moghli
I think Guernsey is an incredibly strong position and actually, as a UK lawyer, at some point we will become a competitor to Guernsey, and unfortunately Guernsey are light years ahead of us.
Distribution
Leith Moghli
In terms of pitfalls I think everybody's thinking very carefully about the Brexit situation and what we've seen over the last three years, is that very few people are setting up funds in the UK that haven't done so historically. The reason is that your route to distributing your fund across Europe is two-fold.
Either you're a full scope, EU-domiciled manager relying on a marketing passport or you're a third country marketing to Europeans, using the National Private Placement Regime so I think a lot of the pitfalls have already been considered. Ironically today, because of the way we are in terms of Brexit negotiations, we have not yet implemented a MoU with Europe as Guernsey and others have that would let us market from the UK on a private placement basis, so that's a major pitfall.
If you are thinking of setting up as a UK sponsor with the base assumption of wanting to keep things cheap and easy and keep everything in the UK, you'll quickly find unless something changes, and I very much hope it will do, you will quickly find yourself running into regulatory problems in being able to distribute that product.
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.
