02 July 2013

Hedgeweek: Why private equity keeps on choosing Guernsey

Experience, expertise, 'fast track' regulatory routes, listing capabilities and a dual regime for AIFMD are just some of the reasons why leading global private equity houses are continuing to choose Guernsey as their fund domicile.

Guernsey practitioners recognise that fundraising is more difficult than ever before. Some who have spoken to Guernsey Finance recently highlighted how it is the funds being promoted by managers with a proven track record that are finding most joy in enticing investors who have become more cautious and demanding following from the global financial crisis.

However, despite this landscape, it is clear that managers continue to view Guernsey as an attractive jurisdiction to domicile and service their funds. Guernsey has built a wealth of expertise and first-class infrastructure for the structuring, management, administration and custody of the widest range of funds.

The Island plays host to a broad selection of administrators, ranging from independent, boutique providers to large, multinational organisations, as well as leading custodians. Guernsey’s fund industry can also draw on the services provided by the island’s banking, wealth management and risk management sectors. In addition, it is supported by a comprehensive network of investment, legal, tax, audit, accounting and actuarial advisers, including multi-jurisdictional law firms and global accountancy firms.

The majority of their work relates to Guernsey open and closed-ended and listed funds, which are now promoted and sponsored by leading institutions in more than 55 financial centres globally. Guernsey funds can be established through a range of flexible investment vehicles such as companies, Limited Partnerships (LPs), the Guernsey-pioneered Protected Cell Companies (PCCs), Incorporated Cell Companies (ICCs) and unit trusts.

There has always been an appreciation of Guernsey’s robust yet pragmatic approach to regulation. For example, ‘fast track’ routes have been introduced which allow for the speedy launch of funds targeted at professional investors and yet, those investors also have the security of knowing that all Guernsey funds are regulated.

Investors and managers can also be reassured by Guernsey’s position regarding the Alternative Investment Fund Managers Directive (AIFMD), which comes into effect from 22 July, 2013. Guernsey is not a Member State of the EU and is considered a third-country under the terms of AIFMD. However, Guernsey has embraced AIFMD and intends to operate a dual regime whereby it will be possible to distribute Guernsey funds into both EU and non-EU countries.

Ben Morgan, a Partner at Carey Olsen, said that Guernsey ultimately offered “optionality and flexibility". His view was that it would be wrong to assume that all existing Guernsey funds will opt to be self-managed and therefore be non-EU AIFM managed. Some will want their UK operation in the EU to be the AIFM and will therefore have the option to be AIFMD authorised.

On 7 June 2013, the Guernsey Financial Services Commission (GFSC) issued domestic Alternative Investment Fund Managers Directive (AIFMD) marketing rules, together with a notification form and confirmed they are able to accept applications prior to 22 July 2013. The GFSC has also provided a set of frequently asked questions (FAQs) which will be updated as the EU-wide implementation of AIFMD unfolds. 

Amending its domestic rules and the provision of guidance signals that Guernsey is well advanced in being able to continue to offer access to EU markets in view of the AIFMD coming into force on 22 July this year.

This most recent development follows approval from the European Securities and Markets Authority (ESMA) of the bilateral agreements to be signed which will create a formal framework of cooperation on matters of mutual interest between the GFSC and the equivalent bodies in the EU Member States, Croatia, Iceland, Liechtenstein and Norway.

Fiona Le Poidevin, Chief Executive of Guernsey Finance, said: "I am extremely pleased that the rules have been released on the Commission’s website along with the FAQs, well ahead of the July implementation date. Together with the ESMA announcement, the approval of Guernsey’s domestic marketing rules demonstrates that Guernsey is well prepared for 22 July, when AIFMD goes live across Europe. Indeed, this gives certainty to those currently using or considering using Guernsey as a fund domicile, in terms of the Island’s approach to the Directive.

"Guernsey will offer a dual regime. We will have an AIFMD offering for those EU investors and managers who need or choose to take this route and at the same time maintain our existing regime for those who fall outside the scope of AIFMD or are able to take advantage of NPP regimes. This reflects the fact that we always strive to provide the best solutions for the truly global client base of the Guernsey investment fund industry.

"Guernsey intends to fully engage with the consultations on the third country passporting regime to be implemented by Europe, to ensure that Guernsey managers will be ideally placed to take advantage of the new benefits of being able to market funds on a pan-European basis with a single authorisation, as the regime is currently envisaged to work."

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