Client Director, Julian Carey reflects on how Guernsey's financial services sector adapted to a year of uncertainty.*
In what was a turbulent year for many, Guernsey was fortunate to have Dr Nicola Brink as its Director of Public Health and a government that devoted significant resources and implemented highly effective policies to reduce the local population's exposure to Covid-19. But with virus outbreaks affecting business across the world, how has Guernsey's vital financial sector responded and what will 2021 look like for the industry?
Local firms had to dramatically adapt their operating models to accommodate entire workforces working from home (WFH) when lockdown was first introduced. It was astonishing how efficiently most firms were able to pivot and adopt the necessary technologies to keep their teams working effectively and keep their clients engaged.
Despite the easing of lockdown restrictions, many businesses have continued to provide staff with the flexibility of WFH options in what is likely to be the lasting legacy of the pandemic. Naturally, this has resulted in some companies moving to smaller premises and saving significant costs in the process.
Clients and income
Just as some sectors of the economy have suffered badly or fared well, so have clients. Funds that have invested heavily in sectors such as commercial real estate, oil and gas, hospitality or airlines will have suffered a reduction in value. Consequently, the financial services companies servicing these funds are likely to have experienced a reduction in fee income.
That being said, Guernsey's fund sector comprises mostly of closed-ended funds, many of which follow the private equity model of investors committing capital which is drawn down as and when it's required for investments. These funds invest for the long term and are not subject to short term shocks in the way open-ended funds are, meaning Guernsey's funds sector has not suffered too much damage.
Some funds are also uncorrelated with the stock markets such as music royalty funds or litigation funds. As a result, funds investing in these asset classes and the administrators who service them have been able to ride out the volatility of the past year. Nonetheless, stock market sentiment has been surprisingly resilient around the world.
The pandemic has also catalysed interest in the much-vaunted green sector as lockdowns have reemphasised the value of the natural world. In response, governments are further clamping down on polluting industries. For example, in November 2020 the UK vowed to end the of sale of new petrol and diesel cars by 2030.
Guernsey is perfectly placed to benefit from rising interest in sustainable practices. Its Green Fund initiative has drawn significant interest from fund managers whose investors demand compliance with ESG principles.
With restricted travel on and off the island and long quarantine periods upon arrival, the unrelenting conveyor belt of 'red-eyed' business development teams has ground to a halt. It has yet to be seen just how much this will affect our local businesses on the island over the long-term. However, the emergence of Zoom and Microsoft Teams has catapulted business relationships into the virtual world. In many instances we have found that people are now much more receptive to speak to their contacts from Guernsey. Particularly as everyone seems to be busy as new funds are being established.
The year ahead: cause for optimism?
Whilst Guernsey's fund sector has weathered what is surely one of the most volatile years in living memory, will 2021 provide fund managers with at least a modicum of certainty?
With many funds sitting on huge amounts of undeployed dry powder, it is widely expected that from March 2021 there will be a surge of investment activity. This will be reflected in the wider UK economy as an estimated £1bn in savings accrued over the lockdown period is released and greater certainty returns to everyone's lives.
The roll-out of Covid-19 vaccines is of course wonderful news and the cause of much optimism. However, this is tempered by growing discord in societies around the world that have become tired of long-term restrictions on movements and gatherings. Recent surges in case numbers in places such as the USA, UK and even in our sister island of Jersey, are a cause for concern.
Despite these reservations, there is a growing sense of optimism that 2021 will see a return to something that resembles normality, as the vaccine programme is expanded and manufacturing capacity is increased.
Ultimately, we will have to wait and see how 2021 unfolds, an experience we're all now very well accustomed to!
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