ONSHORE TIES: Long-distance relationships

Guernsey is seeking greater ties with Luxembourg as the trend for dual fund structures emerges, finds Nick Fitzpatrick.

Fiona Le Poidevin, the deputy director of Guernsey Finance, has recently spent time in Luxembourg attempting to foster links between Guernsey’s fund-servicing industry and its opposite number in the Grand Duchy.

The relationship push comes after several fund businesses based in Guernsey and in the other main Channel Islands service centre, Jersey, opened offices in Luxembourg.

Underpinning these moves is the desire by their fund manager clients to create onshore funds that gain the credibility of a Luxembourg stamp.

Le Poidevin says there has been a trend for Guernsey funds to establish onshore funds in mainland Europe – namely Luxembourg – as a complement to their funds in offshore Guernsey, particularly in private equity where it has an expertise. “We wanted to partner with Luxembourg and say that if their clients are looking for offshore structures, choose Guernsey.”

A team from Guernsey Finance, the promotional agency for the island’s fund industry, hosted an event in Luxembourg last September to build links.

Fund administrators from the Channel Islands that have opened in Luxembourg in recent times include Ipes, a private equity specialist, and DCG, a Jersey-based firm that services real estate funds, among others. They say the launch into Luxembourg was in response to client demands.

Simon Henin, a managing director at Ipes in Luxembourg, says: “A reason we set up was because of demand from clients in Jersey and Guernsey to put a Luxembourg fund underneath an existing structure [in the Channel Islands].”

Ipes’s managing director in Guernsey, Michel Davy, says: “In some areas where they propose to invest, fund managers in the Channel Islands may find they can do that more efficiently through a Luxembourg vehicle.”
Graeme McArthur, head of fund services at DCG, agrees: “The offerings aren’t exactly the same. Luxembourg is more regulated than Jersey and the Channel Islands. What works in Luxembourg might not work in Jersey, and vice-versa. But the offerings can be complementary.”

Ipes opened its Luxembourg office in February 2010 with a chartered accountant licence and got a full licence from the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg regulator, that September.

DCG also opened its Luxembourg office in 2010.

It is not just third-party administration firms that have extended into Luxembourg. Stonehage Group, a multi-family office wealth management business with offices in Jersey, opened a Luxembourg office in November last year.  Eric Osch, who heads the office, says: “Some clients expressed an interest in Luxembourg. We subsequently structured a real estate offering for some of them.”

Stonehage used a Luxembourg specialised investment fund, or Sif, to do this. “Clients are sophisticated and wanted people in Luxembourg,” he adds. “The product could have been manufactured in Jersey, but the choice of Luxembourg had to do with eligibility. For example, one country might not be happy with a Jersey structure for tax reasons.”

Apart from the issue of tax, obtaining cross-border marketing benefits afforded by Luxembourg fund structures that comply with EU product directives, notably Ucits for retail funds and the incoming Alternative Investment Fund Managers (Aifm) directive, are a major reason to establish funds there.

But the Luxembourg Sif structure that Stonehage used is more flexible than others and could go some way towards competing for private equity and real estate business that falls outside the Aifm directive. In other words, the structure could compete with the Channel Islands.

Osch says Jersey “expert funds” have more flexible diversification requirements, which can be an advantage of that structure.

Alternative passport
Nevertheless, with competing products, could this hinder the efforts by Guernsey to build links with Luxembourg?
“To be honest, there might be more competition between them than co-operation,” says one Channel Island-based administrator.

The Channel Islands will also have an ability to compete for Aifm business, too. According to law firm Carey Olsen’s Aifm briefing dated September 2011, from 2015 at the latest the directive will enable all funds based in the Channel Islands with Channel Islands or EU-based managers to be eligible for a “passport” whereby the fund can be marketed directly into all EU member states, as long as certain criteria are adhered to.

Asked what he thinks about the prospect of better links with fund centres that are, most of the time, also competitors, Camille Thommes, director general at the Association of the Luxembourg Funds Industry (Alfi) says: “We are competing on certain aspects, but not all.

Guernsey and Jersey are not as much about Ucits cross-border distribution as Luxembourg is.

“We want to replicate the success of Ucits in the alternative space. We are not alone in that, though we are not as well known in that space.”

However, Thommes acknowledges that the idea of dual fund structures is feasible. “We commissioned a report from Oliver Wyman [a consulting firm] about alternatives funds and they found that there could be a co-existence of regulated and unregulated structures.”

Charles Muller a partner at KPMG’s European investment management practice and until last year the deputy director general of Alfi, indicates that Luxembourg might want to be reciprocal as Guernsey seeks better ties. “A non-EU fund that will want to continue to be distributed in Europe will have to comply with certain requirements set in Aifm and will need to designate a country of reference in the EU,” he says.

“It is obvious those countries in the EU that have become famous for cross-border distribution of Ucits funds – notably Ireland and Luxembourg – will also want to be the partner of choice of funds domiciled in the Channel Islands, Switzerland and beyond that want to use the new alternative fund passport.”

Le Poidevin says: “We are competitors in certain circumstances. But we want to work together where and when it’s appropriate.”

©2012 fund europe



The tension between urgency and inaction will continue to influence sustainability discussions in 2024, as reflected in the trends report from S&P Global.
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…


Luxembourg is one of the world’s premiere centres for cross-border distribution of investment funds. Read our special regional coverage, coinciding with the annual ALFI European Asset Management Conference.