The Channel Islands
14 November 2012
Jersey and Guernsey are embracing the gradual shift from servicing the traditional fund to something a little bit special, as AST finds out
Image: Shutterstock
The most recent news springing from the Channel Islands came on Halloween, when RBC Wealth Management launched its intermediary wealth solutions, offering services from treasury to global custody, with Adam Norris nabbed from HSBC Private Bank to lead business development.
New offerings and solutions are par for the course for the islands, which have become increasingly press-savvy, and are keen to be known as a servicing centre that manages the most complex of funds.
Fiona Le Poidevin, chief executive of Guernsey Finance, states that Guernsey has an investment fund industry with a heritage that stretches back half a century, but it has been the last 20 years which has really seen a shift in focus.
“During the past two decades, the sector has seen a gradual yet sustained shift where the balance of business has moved from being largely retail, equity-traded/cash-based schemes to predominantly institutional, alternative and niche funds. This experience means that the island has built a wealth of expertise and first-class infrastructure for the structuring, management, administration and custody of the widest range of funds, including hedge funds/funds of hedge funds, property and private equity.”
Le Poidevin used the latest figures from the Guernsey Financial Services Commission (GFSC) to show that, while Guernsey has seen a slight dip in funds under administration year-on-year, the island has come on in leaps and bounds compared to two years ago. “The total net asset value of funds under management and administration in the island grew £711 million during the second quarter of the year to reach £270.8 billion at the end of June 2012. This represents a decrease of £3.6 billion (1.3 percent) year-on-year but is up £46.6 billion (20.8 percent) on the same time two years ago and an increase of £101.2 billion (59.6 percent) since the end of June 2009. What we can see is that overall the sector is stable, with the continuation of longer term trends such as the growth in the servicing of non-Guernsey open ended schemes and the more notable increase in work related to Guernsey closed ended funds.”
The Jersey fund industry saw a 3.5 percent increase in the NAV of funds under administration in Q1 2012, according to figures from the Jersey Financial Services Commission. The total number of regulated funds grew by 1.4 percent and the total number of unregulated funds increased by 8.4 percent, with regulated fund stocks at 1412: their best performance since 2009.
Le Poidevin adds that there have also been a number of positive announcements in recent months related to Guernsey closed ended funds across a number of different sectors, such as infrastructure, renewable energy and mining, with diverse geographical interests, including the UK, Europe, Africa and Brazil.
“However, the most notable recent development was Coller Capital announcing the final closing of its latest Guernsey fund, Coller International Partners VI, with commitments of $5.5 billion. This is yet another high profile example of the fact that Guernsey is recognised as one of the leading jurisdictions for closed ended funds and in particular private equity, which represents more than £80 billion of our total funds business.”
Gerald Hough, managing director of State Street Investor Services in the Channel Islands explains the bank’s presence in the market, agreeing that the islands are ramping up their presence in the alternatives sector.
“State Street entered the Channel Islands in two ways. Firstly was the acquisition of the Scottish Widows investment administration business from Lloyds Bank in the UK in 2000, which included a trustee company in Guernsey, and the second was the acquisition of Deutsche Bank’s custody business in 2003, which included administration and custody companies in Jersey. On both islands, they were well-established and profitable businesses which gave the company an excellent foundation for further growth.”
“[We] expanded our presence in the Channel Islands with the acquisition of Mourant International Finance Administration in April 2010 and this brought considerable servicing capability in the alternatives sector; specifically private equity, hedge fund and real estate administration. We believe the islands have had specialist fund capability for many years and have experienced excellent growth so are not aware that there has been a need to re-establish.”
“The island also continues to be recognised for its ability to provide a domicile from which structures can be listed on a wide range of stock exchanges, including the London Stock Exchange (LSE), the local Channel Islands Stock Exchange (CISX) as well as the Hong Kong Stock Exchange (HKEx), among many others globally,” states Le Poidevin.
“Indeed, data to the end of last year shows that there were more Guernsey entities listed on the markets of the LSE than from any other jurisdiction in the world apart from the UK and eight more have been added so far this year across the Specialist Fund Market (SFM), Alternative Investment Market (AIM) and Main Market.”
Mystery solved
Inevitably, regulations pose challenges for the islands, along with how fund administrators should support continued growth with limited resources, and whether outsourcing of back-office functions is necessary.
“Both islands need to exercise a degree of control over population expansion,” states Hough. “There is therefore some difficulty in finding well qualified staff to fulfill the demands of a sector that is and has been growing strongly for two decades. We are lucky at State Street as we have been able to attract top talent ensuring the service delivery to clients is of a high quality and fully compliant with the regulators. The opportunity to leverage our global footprint and capability is critical to being able to continue this upward growth trajectory and if done in a cost effective way can generate good quality income for the islands.”
However, directives and regulations—the financial industry’s own ‘meddling kids’—may be a blessing in disguise for the islands.
“There is quite a high demand for custody on the islands and this can only increase with the introduction of AIFMD (Alternative Investment Fund Managers Directive) legislation in Europe and Dodd-Frank regulation in the US,” explains Hough. “Also it makes for good practice for investors to ask for segregation of assets between administration and custody as affords them improved protection. The major global custodians are all represented on the Islands. Given the moves being made by regulators to impose depository liability risk on custodians there are not many firms outside on the top ten with balance sheet strength able to support the provision of sub-custody services.”
Guernsey recently revealed plans to have two parallel regulatory regimes for investment funds when AIFMD comes into force.
Le Poidevin reiterates Guernsey’s intention to introduce a regime that is fully AIFMD-compliant, while also maintaining the existing regulations for those investors and managers that do not require an AIFMD fund.
“It had been expected that the final Level 2 rules for the detailed implementation of AIFMD would be published in early autumn but now it is believed that this might not happen until December. The delay is fuelling speculation that the July 2013 deadline for the rules being transposed into local legislation may be put back but this remains unclear,” said a release from Guernsey Finance.
Le Poidevin says that Guernsey will operate a full AIFMD-equivalent regime for those EU investors and managers that are obliged to take this route or any investors or managers that choose this as their preferred option.
“For non-EU investors and managers, investing in the EU and globally, there will remain a parallel regime with its own appropriate set of regulations. This will also be available to EU investors who are able to take advantage of the national private placement regime in the immediate term or those who fall outside the scope of AIFMD.”
Neale Jehan, executive director at KPMG in Guernsey and chairman of the technical committee of the Guernsey Investment Fund Association, is leading the local fund industry’s response to the directive, and says that as a non-EU jurisdiction with close proximity and business ties to the EU, it is essential that Guernsey complies with the regime for clients that wish to take advantage of it.
“However, we must recognise that we have clients whose business does not touch the EU at all in terms of management or marketing of funds and it is important that these clients have the choice to elect to fall under the AIFMD regime or remain outside, as is their right.”
For the island that has complete autonomy over internal affairs, it seems apt that Guernsey has decided to do what it wants when it comes to AIFMD. And Jersey too has decided to be all things to all people, with a report from PwC stating that the island is exploring the possibility of enhancing the existing regime by enabling a complimentary fund product, providing the option to mirror investor protection elements of the AIFMD, “without suffering some of the inappropriate operational constraints”.
It seems as though the sense of anxiety so prevalent on the mainland has bypassed the islands somewhat, with a recent report revealing 54 percent and 51 percent of investors in Jersey and Guernsey respectively think that the outlook for the next 10 years is positive
And with a multi-tiered approach to directives, a fairly solid amount of funds under administration, and a first-class reputation for specialist funds, the islands seem set to remain attractive domiciles for fund managers across the globe.
New offerings and solutions are par for the course for the islands, which have become increasingly press-savvy, and are keen to be known as a servicing centre that manages the most complex of funds.
Fiona Le Poidevin, chief executive of Guernsey Finance, states that Guernsey has an investment fund industry with a heritage that stretches back half a century, but it has been the last 20 years which has really seen a shift in focus.
“During the past two decades, the sector has seen a gradual yet sustained shift where the balance of business has moved from being largely retail, equity-traded/cash-based schemes to predominantly institutional, alternative and niche funds. This experience means that the island has built a wealth of expertise and first-class infrastructure for the structuring, management, administration and custody of the widest range of funds, including hedge funds/funds of hedge funds, property and private equity.”
Le Poidevin used the latest figures from the Guernsey Financial Services Commission (GFSC) to show that, while Guernsey has seen a slight dip in funds under administration year-on-year, the island has come on in leaps and bounds compared to two years ago. “The total net asset value of funds under management and administration in the island grew £711 million during the second quarter of the year to reach £270.8 billion at the end of June 2012. This represents a decrease of £3.6 billion (1.3 percent) year-on-year but is up £46.6 billion (20.8 percent) on the same time two years ago and an increase of £101.2 billion (59.6 percent) since the end of June 2009. What we can see is that overall the sector is stable, with the continuation of longer term trends such as the growth in the servicing of non-Guernsey open ended schemes and the more notable increase in work related to Guernsey closed ended funds.”
The Jersey fund industry saw a 3.5 percent increase in the NAV of funds under administration in Q1 2012, according to figures from the Jersey Financial Services Commission. The total number of regulated funds grew by 1.4 percent and the total number of unregulated funds increased by 8.4 percent, with regulated fund stocks at 1412: their best performance since 2009.
Le Poidevin adds that there have also been a number of positive announcements in recent months related to Guernsey closed ended funds across a number of different sectors, such as infrastructure, renewable energy and mining, with diverse geographical interests, including the UK, Europe, Africa and Brazil.
“However, the most notable recent development was Coller Capital announcing the final closing of its latest Guernsey fund, Coller International Partners VI, with commitments of $5.5 billion. This is yet another high profile example of the fact that Guernsey is recognised as one of the leading jurisdictions for closed ended funds and in particular private equity, which represents more than £80 billion of our total funds business.”
Gerald Hough, managing director of State Street Investor Services in the Channel Islands explains the bank’s presence in the market, agreeing that the islands are ramping up their presence in the alternatives sector.
“State Street entered the Channel Islands in two ways. Firstly was the acquisition of the Scottish Widows investment administration business from Lloyds Bank in the UK in 2000, which included a trustee company in Guernsey, and the second was the acquisition of Deutsche Bank’s custody business in 2003, which included administration and custody companies in Jersey. On both islands, they were well-established and profitable businesses which gave the company an excellent foundation for further growth.”
“[We] expanded our presence in the Channel Islands with the acquisition of Mourant International Finance Administration in April 2010 and this brought considerable servicing capability in the alternatives sector; specifically private equity, hedge fund and real estate administration. We believe the islands have had specialist fund capability for many years and have experienced excellent growth so are not aware that there has been a need to re-establish.”
“The island also continues to be recognised for its ability to provide a domicile from which structures can be listed on a wide range of stock exchanges, including the London Stock Exchange (LSE), the local Channel Islands Stock Exchange (CISX) as well as the Hong Kong Stock Exchange (HKEx), among many others globally,” states Le Poidevin.
“Indeed, data to the end of last year shows that there were more Guernsey entities listed on the markets of the LSE than from any other jurisdiction in the world apart from the UK and eight more have been added so far this year across the Specialist Fund Market (SFM), Alternative Investment Market (AIM) and Main Market.”
Mystery solved
Inevitably, regulations pose challenges for the islands, along with how fund administrators should support continued growth with limited resources, and whether outsourcing of back-office functions is necessary.
“Both islands need to exercise a degree of control over population expansion,” states Hough. “There is therefore some difficulty in finding well qualified staff to fulfill the demands of a sector that is and has been growing strongly for two decades. We are lucky at State Street as we have been able to attract top talent ensuring the service delivery to clients is of a high quality and fully compliant with the regulators. The opportunity to leverage our global footprint and capability is critical to being able to continue this upward growth trajectory and if done in a cost effective way can generate good quality income for the islands.”
However, directives and regulations—the financial industry’s own ‘meddling kids’—may be a blessing in disguise for the islands.
“There is quite a high demand for custody on the islands and this can only increase with the introduction of AIFMD (Alternative Investment Fund Managers Directive) legislation in Europe and Dodd-Frank regulation in the US,” explains Hough. “Also it makes for good practice for investors to ask for segregation of assets between administration and custody as affords them improved protection. The major global custodians are all represented on the Islands. Given the moves being made by regulators to impose depository liability risk on custodians there are not many firms outside on the top ten with balance sheet strength able to support the provision of sub-custody services.”
Guernsey recently revealed plans to have two parallel regulatory regimes for investment funds when AIFMD comes into force.
Le Poidevin reiterates Guernsey’s intention to introduce a regime that is fully AIFMD-compliant, while also maintaining the existing regulations for those investors and managers that do not require an AIFMD fund.
“It had been expected that the final Level 2 rules for the detailed implementation of AIFMD would be published in early autumn but now it is believed that this might not happen until December. The delay is fuelling speculation that the July 2013 deadline for the rules being transposed into local legislation may be put back but this remains unclear,” said a release from Guernsey Finance.
Le Poidevin says that Guernsey will operate a full AIFMD-equivalent regime for those EU investors and managers that are obliged to take this route or any investors or managers that choose this as their preferred option.
“For non-EU investors and managers, investing in the EU and globally, there will remain a parallel regime with its own appropriate set of regulations. This will also be available to EU investors who are able to take advantage of the national private placement regime in the immediate term or those who fall outside the scope of AIFMD.”
Neale Jehan, executive director at KPMG in Guernsey and chairman of the technical committee of the Guernsey Investment Fund Association, is leading the local fund industry’s response to the directive, and says that as a non-EU jurisdiction with close proximity and business ties to the EU, it is essential that Guernsey complies with the regime for clients that wish to take advantage of it.
“However, we must recognise that we have clients whose business does not touch the EU at all in terms of management or marketing of funds and it is important that these clients have the choice to elect to fall under the AIFMD regime or remain outside, as is their right.”
For the island that has complete autonomy over internal affairs, it seems apt that Guernsey has decided to do what it wants when it comes to AIFMD. And Jersey too has decided to be all things to all people, with a report from PwC stating that the island is exploring the possibility of enhancing the existing regime by enabling a complimentary fund product, providing the option to mirror investor protection elements of the AIFMD, “without suffering some of the inappropriate operational constraints”.
It seems as though the sense of anxiety so prevalent on the mainland has bypassed the islands somewhat, with a recent report revealing 54 percent and 51 percent of investors in Jersey and Guernsey respectively think that the outlook for the next 10 years is positive
And with a multi-tiered approach to directives, a fairly solid amount of funds under administration, and a first-class reputation for specialist funds, the islands seem set to remain attractive domiciles for fund managers across the globe.
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