Tale of two islands
09 Nov 2022
Brian Bollen looks at Guernsey and Jersey’s approach toward sustainability initiatives, regulation and how they are faring against current global macro events and economic headwinds
Image: eloko67/stock.adobe.com
Jersey and Guernsey benefit from the desire of institutional investors to do business in areas with political and economic stability, robust regulation relating to increasingly fashionable elements such as ESG, and a strong legal environment.
Jersey’s success in growing US business flows, and its strategy to diversify its proposition for the US asset management market, were highlighted during an extensive roadshow in the country from 17 to 27 October.
The venture, billed as Driving Stateside Ambition: The Future of Funds, took place across Chicago, New York, Miami and San Francisco.
This year marks three years since Jersey Finance opened an office in New York to bolster its visibility in the US market, and since then the number of US-originated fund structures in Jersey has grown 61 per cent, while the value of US-originated fund assets under management services in Jersey has risen by 22 per cent (Monterey).
Jersey Finance says that growth has been delivered based on the clear premise that the island can provide a gateway into Europe for US managers. Enhancements to Jersey’s Limited Partnership legislation earlier this year, and changes to the EU’s rules around reverse solicitation for non-EU alternative funds, have also heightened Jersey’s appeal amongst US managers.
Jersey Finance estimates that over the first half of 2022, more than 110 securitisation structures, including collateralised loan obligations and collateralised debt obligations, were registered in Jersey, a number of which migrated from other jurisdictions.
At the heart of the event was the evolution of international financial centres: where they have come from, where they are going, and what this means for alternative investment fund managers in the US. It also addressed the specific challenges and opportunities that face them when raising funds overseas.
“Let me start with the big picture,” Elliot Refson, head of funds at Jersey Finance, said in his welcome to attendees at the conference.
“The evolution of international financial centres matters because the way they were established, and the markets they set out to attract, set the scene for where they are now, and more importantly, the impact that this will have on those who primarily determine domiciliation — the investors.”
Refson added: “If you were to go back 20 years, Jersey was seen as over-regulated, inflexible and expensive as an alternative investment funds jurisdiction. The reason for this is that our government and regulator strove to adopt the highest standards; to embrace and be early adopters of new regulation and legislation. Fast forward to today, and Jersey is seen as proportionately regulated, innovative and competitive. So what changed? In short, the answer to that is everything and nothing.”
“The internationalism of standards and regulation that we have seen over recent years has set the scene for the future of the international financial centres”, he continued, identifying two key driving forces to this change.
The first is that other jurisdictions, who took a softer view of regulation and international standards at the outset, have moved — or been forced — to catch up with Jersey’s position around international standards. This has led to regulatory uncertainty in some jurisdictions and uncovered flaws, for example a lack of suitable infrastructure or personnel in some jurisdictions.
At the same time, geopolitical events have uncovered further instability. This has spooked many investors and managers who demand stability and certainty in their jurisdictions. Jersey has not changed its outlook, but maintained its course of the highest standards.
This approach is supported by stability, both political and fiscal, as well as a minimal-change outlook from a regulatory, legal or economic perspective, underpinned by world-class infrastructure.
“Either by good luck or good management, the decisions made by our predecessors over 20 years ago have landed us in the sweet spot today,” Refson affirmed.
He added: “The key market trends affecting alternative fund managers fall into two clear camps: those that are within the remit of the manager and those which are not. Those which are within the remit of the manager are areas such as increased allocation to alternatives, increased competition for quality investments, and increased pressure on valuations.
“Those that are not within the remit of the manager are areas such as increased regulatory pressure, the removal of reverse solicitation, regulatory uncertainty in certain jurisdictions, geopolitical uncertainty in certain jurisdictions, and the rise of ESG.”
Refson concluded: “These macro areas can be mitigated by the managers choice of jurisdiction and this is our message to managers. You focus on your job and what you can control, and we will do ours to offer political and fiscal stability and maintain robust but proportional regulation with a minimal change outlook. This takes off the table the risks and uncertainties to you and your investors, which in practice means no red flags and no surprises,” Refson highlighted.
Sustainable investing
When asked to identify the main themes and big issues currently dominating the Channel Islands region, Dave Sauvarin, head of Channel Islands at Northern Trust, pointed to sustainable investing, stability, alternative investments and future challenges as points of particular interest.
“Aligned with the heightened institutional investor focus on sustainability themes, there is growing focus on being at the forefront of supporting ESG investing. A survey of 300 global asset management firms conducted for Northern Trust by WBR Insights shows over 60 per cent plan to launch or increase their ESG options,” Sauvarin adds.
Guernsey is well positioned to support this trend, having led the way globally with the introduction of the Guernsey Green Fund regime in 2018 — the world’s first regulated green investment fund product, focused on investments helping to mitigate against climate change.
This was followed by the launch of the Natural Capital Fund (NCF) in September 2022.
The regime creates a regulatory designation for funds, to help channel investment into biodiversity and natural capital projects that make a positive contribution and significantly reduce harm to the natural world.
Sauvarin suggests: “The NCF regime provides a kitemark for funds which encourage investment into biodiversity and natural capital projects, providing assurance for environmentally conscious investors.
“These designations represent an additional regulatory overlay once the fund is established, adding credibility from a manager perspective for ESG fund raising and helping Guernsey build on its reputation as a sustainable investing hub.”
Guernsey continues to build on its expertise and experience as an international finance centre through the Guernsey Green Finance initiative, which aims to fulfil the 17 Global Sustainable Development Goals as set by the United Nations.
Rupert Pleasant, chief executive at Guernsey Finance, says: “Since launching the Guernsey Green Fund four years ago, there is now more than £5 billion in net asset value. This includes some of the largest London-listed renewable energy funds, as well as forestry and farming funds. The breadth of what can be achieved through sustainable finance is clear.”
Stability and regulation
In these times of multiple global macro events and economic headwinds, Guernsey offers a stable international finance centre, according to Northern Trust’s Sauvarin.
“This cannot be overestimated when launching a private capital fund which has a long-life span,” he says.
“Guernsey offers political and fiscal stability, combined with a highly established financial services infrastructure. Our survey also finds more than a third of global asset managers are looking to increase distribution through launching or increasing alternative asset options. Of those, over half (53 per cent) said their firms plan to partner with external support to execute their plans while 44 per cent said they planned to fully outsource the provision of front-, middle- and back-office functions.”
Sauvarin goes on to say: “Guernsey is well placed to support the uptick in interest for private capital funds with a long-established fund servicing infrastructure which has attracted some of the biggest private equity managers in the world.”
While Guernsey is not a member of the EU, it operates a dual regulatory regime to enable the distribution of Guernsey-domiciled funds into both EU and non-EU countries.
Guernsey’s Private Investment Fund is an example of regulatory regime evolution.
The legislation was introduced in 2016 in response to demands for an efficient and quick-to-market regime to give market access to professional investors, enabling funds to be authorised in a very short time with reduced reporting obligations.
When asked what lies ahead for the Channel Islands, Sauvarin affirms: “Organisations which have a global operating model leveraging new digital technologies are best positioned to support their clients’ business goals and growth strategies.
“It is important for service providers to have digital transformation plans in place which facilitate asset managers’ access to services, solutions and new technologies across the investment lifecycle,” he concludes.
Jersey’s success in growing US business flows, and its strategy to diversify its proposition for the US asset management market, were highlighted during an extensive roadshow in the country from 17 to 27 October.
The venture, billed as Driving Stateside Ambition: The Future of Funds, took place across Chicago, New York, Miami and San Francisco.
This year marks three years since Jersey Finance opened an office in New York to bolster its visibility in the US market, and since then the number of US-originated fund structures in Jersey has grown 61 per cent, while the value of US-originated fund assets under management services in Jersey has risen by 22 per cent (Monterey).
Jersey Finance says that growth has been delivered based on the clear premise that the island can provide a gateway into Europe for US managers. Enhancements to Jersey’s Limited Partnership legislation earlier this year, and changes to the EU’s rules around reverse solicitation for non-EU alternative funds, have also heightened Jersey’s appeal amongst US managers.
Jersey Finance estimates that over the first half of 2022, more than 110 securitisation structures, including collateralised loan obligations and collateralised debt obligations, were registered in Jersey, a number of which migrated from other jurisdictions.
At the heart of the event was the evolution of international financial centres: where they have come from, where they are going, and what this means for alternative investment fund managers in the US. It also addressed the specific challenges and opportunities that face them when raising funds overseas.
“Let me start with the big picture,” Elliot Refson, head of funds at Jersey Finance, said in his welcome to attendees at the conference.
“The evolution of international financial centres matters because the way they were established, and the markets they set out to attract, set the scene for where they are now, and more importantly, the impact that this will have on those who primarily determine domiciliation — the investors.”
Refson added: “If you were to go back 20 years, Jersey was seen as over-regulated, inflexible and expensive as an alternative investment funds jurisdiction. The reason for this is that our government and regulator strove to adopt the highest standards; to embrace and be early adopters of new regulation and legislation. Fast forward to today, and Jersey is seen as proportionately regulated, innovative and competitive. So what changed? In short, the answer to that is everything and nothing.”
“The internationalism of standards and regulation that we have seen over recent years has set the scene for the future of the international financial centres”, he continued, identifying two key driving forces to this change.
The first is that other jurisdictions, who took a softer view of regulation and international standards at the outset, have moved — or been forced — to catch up with Jersey’s position around international standards. This has led to regulatory uncertainty in some jurisdictions and uncovered flaws, for example a lack of suitable infrastructure or personnel in some jurisdictions.
At the same time, geopolitical events have uncovered further instability. This has spooked many investors and managers who demand stability and certainty in their jurisdictions. Jersey has not changed its outlook, but maintained its course of the highest standards.
This approach is supported by stability, both political and fiscal, as well as a minimal-change outlook from a regulatory, legal or economic perspective, underpinned by world-class infrastructure.
“Either by good luck or good management, the decisions made by our predecessors over 20 years ago have landed us in the sweet spot today,” Refson affirmed.
He added: “The key market trends affecting alternative fund managers fall into two clear camps: those that are within the remit of the manager and those which are not. Those which are within the remit of the manager are areas such as increased allocation to alternatives, increased competition for quality investments, and increased pressure on valuations.
“Those that are not within the remit of the manager are areas such as increased regulatory pressure, the removal of reverse solicitation, regulatory uncertainty in certain jurisdictions, geopolitical uncertainty in certain jurisdictions, and the rise of ESG.”
Refson concluded: “These macro areas can be mitigated by the managers choice of jurisdiction and this is our message to managers. You focus on your job and what you can control, and we will do ours to offer political and fiscal stability and maintain robust but proportional regulation with a minimal change outlook. This takes off the table the risks and uncertainties to you and your investors, which in practice means no red flags and no surprises,” Refson highlighted.
Sustainable investing
When asked to identify the main themes and big issues currently dominating the Channel Islands region, Dave Sauvarin, head of Channel Islands at Northern Trust, pointed to sustainable investing, stability, alternative investments and future challenges as points of particular interest.
“Aligned with the heightened institutional investor focus on sustainability themes, there is growing focus on being at the forefront of supporting ESG investing. A survey of 300 global asset management firms conducted for Northern Trust by WBR Insights shows over 60 per cent plan to launch or increase their ESG options,” Sauvarin adds.
Guernsey is well positioned to support this trend, having led the way globally with the introduction of the Guernsey Green Fund regime in 2018 — the world’s first regulated green investment fund product, focused on investments helping to mitigate against climate change.
This was followed by the launch of the Natural Capital Fund (NCF) in September 2022.
The regime creates a regulatory designation for funds, to help channel investment into biodiversity and natural capital projects that make a positive contribution and significantly reduce harm to the natural world.
Sauvarin suggests: “The NCF regime provides a kitemark for funds which encourage investment into biodiversity and natural capital projects, providing assurance for environmentally conscious investors.
“These designations represent an additional regulatory overlay once the fund is established, adding credibility from a manager perspective for ESG fund raising and helping Guernsey build on its reputation as a sustainable investing hub.”
Guernsey continues to build on its expertise and experience as an international finance centre through the Guernsey Green Finance initiative, which aims to fulfil the 17 Global Sustainable Development Goals as set by the United Nations.
Rupert Pleasant, chief executive at Guernsey Finance, says: “Since launching the Guernsey Green Fund four years ago, there is now more than £5 billion in net asset value. This includes some of the largest London-listed renewable energy funds, as well as forestry and farming funds. The breadth of what can be achieved through sustainable finance is clear.”
Stability and regulation
In these times of multiple global macro events and economic headwinds, Guernsey offers a stable international finance centre, according to Northern Trust’s Sauvarin.
“This cannot be overestimated when launching a private capital fund which has a long-life span,” he says.
“Guernsey offers political and fiscal stability, combined with a highly established financial services infrastructure. Our survey also finds more than a third of global asset managers are looking to increase distribution through launching or increasing alternative asset options. Of those, over half (53 per cent) said their firms plan to partner with external support to execute their plans while 44 per cent said they planned to fully outsource the provision of front-, middle- and back-office functions.”
Sauvarin goes on to say: “Guernsey is well placed to support the uptick in interest for private capital funds with a long-established fund servicing infrastructure which has attracted some of the biggest private equity managers in the world.”
While Guernsey is not a member of the EU, it operates a dual regulatory regime to enable the distribution of Guernsey-domiciled funds into both EU and non-EU countries.
Guernsey’s Private Investment Fund is an example of regulatory regime evolution.
The legislation was introduced in 2016 in response to demands for an efficient and quick-to-market regime to give market access to professional investors, enabling funds to be authorised in a very short time with reduced reporting obligations.
When asked what lies ahead for the Channel Islands, Sauvarin affirms: “Organisations which have a global operating model leveraging new digital technologies are best positioned to support their clients’ business goals and growth strategies.
“It is important for service providers to have digital transformation plans in place which facilitate asset managers’ access to services, solutions and new technologies across the investment lifecycle,” he concludes.
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