November 2013

ASSOCIATION COLUMN: Wanted: open-ended funds

Joe TrueloveGuernsey’s investment industry began in the 1960s providing services to predominantly open-ended unit trusts, which were sold mainly in the UK to retail investors and were unconstrained by prescriptive regulation or codified corporate governance. Today, the Guernsey investment fund industry is dominated by closed-ended structures. Those are all subject to regulation and attract predominantly institutional investors and high-net-worth individuals. Funds under management in Guernsey increased by £8 billion (€9.4 billion) or 4.45% in the 12 months to June 30, to £187 billion. Closed-ended schemes, which, at £137 billion, comprise 74% of the total, grew in value by £11 billion from £126 billion. Meanwhile, open-ended fund values have fallen in the same period by £3 billion to £50 billion. Of the 830 Guernsey domiciled funds: 324 invest in private equity, 153 in equities, 145 in property, 81 in debt and 72 are funds of hedge funds and 55 others. Over the past 12 months, private equity, equities and debt funds have risen in number. Also falling within the closed-ended sector but with a different investor profile and a wide variety of both liquid and illiquid asset classes are the closed-ended listed funds. Open-ended funds comprise only 26% of funds under management in Guernsey, and the numbers and values of these schemes have been in gradual decline since the credit crisis. This is an area where we need to work harder to attract new structures to enable Guernsey’s open-ended sector to adapt and flourish. For instance, there are only 28 hedge funds incorporated in Guernsey so this represents an asset class where improvement is potentially achievable. Evidence of Guernsey’s capability to adapt is provided by the growth by £7 billion or 7.8% in value over the last twelve months in the values of non-Guernsey schemes where some element of administration, custody or management is provided from Guernsey. There are actually 263 non-Guernsey open-ended schemes with £99 billion of funds under management, including 130 Cayman and 37 British Virgin Island schemes. For the moment, Guernsey funds can be marketed in much of the EU via national private placement rules and given that most fund promoters in Guernsey have funds that are privately placed to institutional asset managers this is nothing new to them. Guernsey has created a dual regime to accommodate the European Union’s Alternative Investment Fund Managers Directive and equivalents thus enabling promoters to have the choice of forming structures compliant with the directive. Some managers wish to remain outside of the EU and this presents opportunities to Guernsey for managers who wish to relocate here or for those who wish to employ teams in Guernsey to provide either portfolio management or risk management on island. While the EU is a large market, it is not the only market for Guernsey and efforts continue to promote Guernsey funds internationally, which are managed outside the EU, to non-European institutional investors who prefer lighter regulation. Joe Truelove is vice chairman of the Guernsey Investment Fund Association ©2013 funds europe

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