February 2011

GUERNSEY: well-placed at a time of change

gifa"What we have seen during the past year is steadily improving confidence in the markets, and Guernsey, we are seeing growth in the alternative asset classes and, in particular, private equity..." When the Guernsey Investment Funds Association (Gifa) last contributed to these pages at the end of 2009 it was at a time when, internationally, the funds industry was still very much feeling the effects of the global financial crisis. It remained unclear both how deep the impact might be felt and how long it may take to navigate the road to recovery. In addition, we were seeing an increased focus on offshore centres, as well as a greater drive towards regulation most notably in the form of the EU’s Alternative Investments Fund Managers (AIFM) Directive.  I am glad to be able to report that Guernsey has proved extremely resilient and we have also been particularly proactive in ensuring that the island has a funds industry that is well-placed for the future. Latest figures
The latest figures from the Guernsey Financial Services Commission (GFSC) show that the value of funds under management and administration in the island reached a record high of €284bn at the end of September 2010. This represents growth of 34% year on year and 8.4% in the third quarter of 2010.

What we have seen during the past year is steadily improving confidence in the markets.  In Guernsey, we are especially seeing growth in the alternative asset classes and, in particular, private equity, where there is more than €72.5bn of business in Guernsey. We have also seen the launch of structures investing into niche markets such as dispute resolution, films and classic cars, with the Guernsey closed-end, registered fund route proving a very attractive option for these more esoteric asset classes.

Undoubtedly, the capacity for Guernsey domiciled funds to list on the Channel Islands Stock Exchange (CISX), the London Stock Exchange (LSE) and Euronext is a major incentive. Indeed, figures from the LSE show there are more Guernsey-incorporated companies listed on its markets than any of our competitors. This is a message we believe will particularly resonate with professionals working in emerging markets. Indeed, separate LSE figures reveal that of those Indian entities on the Alternative Investment Market (AIM) at the end of October 2010, the latest five to list were all incorporated in Guernsey, including three added during 2010.

We are also seeing growth in non-Guernsey domiciled funds where some aspect of management, administration or custody is carried out in the island. This is an area that has been performing very well in the past year, in part, due to established fund managers relocating operations to the island.

While overall values have recovered extremely well, we have experienced a moderate fall in the total number of schemes domiciled on the island. That is predominantly due to the fact that service providers have taken the opportunity to rationalise portfolios by closing those structures effectively lying dormant. However, that downward trend actually reversed in the last quarter, principally due to new formations in the closed-end sector. AIFM
This performance shows there is continued confidence in Guernsey as a funds domicile. When the AIFM Directive was launched, our future was questioned by some, but Gifa has been working closely with both the GFSC and the Guernsey government to inform colleagues and peers in Europe about our funds industry and the outcome so far has been positive. 
The AIFM agreement that has been reached at Level 1 retains national private placement regimes and therefore means that managers/funds from jurisdictions outside the EU, such as Guernsey, retain access to EU investors on current terms at least until 2018, and possibly longer. A passport regime is set to be introduced from 2015 for third countries (two years earlier within the EU) and national private placement can only fall away after 2018 if that third country passport is working effectively. In Guernsey we are now working hard in this area. We are confident the island – on the OECD “white list” and boasting a new and impressive set of evaluation reports from the IMF – is well placed for meeting the likely criteria for third countries seeking to enter the passport regime.

It will be interesting to see how the cost of this regulation compares to investors’ perception of the benefit. It may be that some investors who do not need to have structures in the EU will see Guernsey as a well-regulated and cost-effective place to do business. In addition, Guernsey will not be closed to business which does not touch Europe in any way, being able to offer both EU and non-EU products going forward. Arguably, it may offer a better solution for inward investment into the EU than an EU vehicle.

In summary, we believe that it is business as usual for Guernsey and the funds industry is very well placed for the future at this time of marked change. Patrick Firth is chairman of the Guernsey Investment Funds Association (Gifa)  

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