Guernsey: The leader in private equity fund administration
Guernsey has an investment fund industry with a heritage that stretches back half a century. 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, alternate 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 not just traditional funds but also alternatives, in particular private equity.
Private equity in Guernsey
The net asset value of investment funds under management and administration in the Island reached just over £271 billion (US$421 billion) at the end of September 2011 – up 11.5% year on year.
The private equity and venture capital sector has seen especially strong growth, reaching more than £80 billion (US$124 billion) at the end of September 2011. The Island’s reputation for excellence in this asset class has been reaffirmed by a Private Equity News / State Street survey where 61% of Chief Financial Officers (CFOs) responding said that Guernsey was their preferred destination for private equity outsourcing.
Jon Moulton, Chairman of Better Capital, gave a ringing endorsement of the Island’s funds industry when speaking in front of more than 300 delegates at the Guernsey Funds Forum in London last May. Jon, who has a house in the Island and whose Guernsey-domiciled investment company is listed on the main market of the London Stock Exchange (LSE), said: “Guernsey has a very good reputation; it works very well….Guernsey needs to carry on doing what it’s doing into the future and it will prosper.”
Another significant figure in the private equity industry is Guy Hands, Chairman of Terra Firma. As well as the private equity firm joining the likes of Permira and Apax by establishing an operation in Guernsey, Guy has also decided to buy a property and live in the Island. This reflects the fact that Guernsey is not just an ideal location for locating management companies but is also attractive as a residence for the managers themselves.
This is no doubt helped by the fact that Guernsey has a zero rate of corporate tax as standard, no withholding tax on dividends paid, no capital gains tax, no inheritance tax and no indirect sales taxes, and personal income tax remains levied at a maximum of 20%, with a cap of £110,000 on non-Guernsey source income or £220,000 on all income.
Infrastructure and expertise
Guernsey administrators and custodians provide services to non-Guernsey funds but a large proportion of their business relates to Guernsey open and closed-ended funds, which are now promoted and sponsored by leading institutions in more than 55 financial centres globally. These can be established through a range of flexible investment vehicles such as companies, unit trusts, the Guernsey-pioneered Protected Cell Companies (PCCs), Incorporated Cell Companies (ICCs) and limited partnerships.
There is a broad range of administrators in the Island, many with specific expertise and bespoke IT solutions for alternative assets. These include specialised private equity administrators such as Ipes, Augentius, Aztec, International Administration Group (IAG) and Alter Domus as well as globally recognised names such as JP Morgan, HSBC, Northern Trust, RBC and State Street who can also act as custodians.
Guernsey’s fund industry can also draw on the services provided by its 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 where there is specialist expertise in alternatives.
The Island’s regulator, the Guernsey Financial Services Commission (GFSC), has grown a reputation for its robust yet pragmatic approach to regulation – for example, all Guernsey schemes remain regulated but ‘fast track’ routes have been introduced which allow for the speedy launch of funds where appropriate. In addition, Guernsey has a pool of experienced and well qualified non-executive directors maintaining high standards of corporate governance.
One of the Island’s great strengths is the ability for Guernsey vehicles to list not just on the LSE but stock exchanges in Amsterdam, Frankfurt, Australia and Toronto, among others, as well as the local Channel Islands Stock Exchange (CISX), which now has more than 4,200 securities listed. Data direct from the LSE to the end of December 2011, shows that Guernsey remains home to more non-UK entities listed on its markets than any other jurisdiction globally. In addition, last year Guernsey companies received approval to list on the Hong Kong Stock Exchange (HKEx).
The international stage
Receiving approval for Guernsey companies to list on HKEx is a very positive development for our finance industry in terms of doing business in Asia. This is a key part of our efforts to diversify business flows from traditional centres such as the City of London to the ‘emerging’ markets of the Far East, India and Russia.
However, Europe still remains an important source of new business and that is why it was so important that we engaged early on in the discussions regarding the Alternative Investment Fund Managers (AIFM) Directive. The detail agreed so far not only provides some certainty but also places Guernsey in a good position going forward in terms of having access to the EU market. There is still much work to do but we are confident that the outcome will be positive for the future of our funds industry.
Our position certainly will not have been harmed by the publication of several independent reports during last year. The IMF commended Guernsey’s high standards of financial regulation, supervision and stability along with our robust criminal justice framework. The OECD’s Global Forum built on its ‘white listing’ of Guernsey by endorsing the Island’s ongoing commitment to tax transparency and exchange of information.
In addition, in November, the Financial Stability Board (FSB) presented a report to the G20 meeting in Cannes which placed Guernsey within the top tier of jurisdictions adhering to international standards and thereby helping to protect global financial stability. Indeed, Guernsey has now signed Tax Information Exchange Agreements (TIEAs) with 34 jurisdictions globally, including the US, China and India.
We are not blind to the fact that there are many challenges ahead. For example, the ‘Zero-10’ corporate tax systems of the Crown Dependencies have come under European scrutiny. The Guernsey Government expects to be able to finalise our position in the middle of this year, however, it has already made clear that we are committed to retaining a regime which is both compliant and competitive i.e. there will be continued tax neutrality for financial services products. Indeed, the exempt regime for the funds industry is in no way under threat and was actually extended in September 2011.
The waters ahead are unlikely to make for plain sailing but we will take the necessary steps to ensure that the conditions remain in place for Guernsey to continue as a leading centre for private equity fund administration into the future.
Fiona joined Guernsey Finance, the promotional body for the island’s finance industry, at the end of March 2011. Her role includes assisting with business development in new and emerging markets, providing technical support to industry and liaising with industry associations. Fiona can be contacted on +44 (0) 1481 720071 or by email at email@example.com.
To find out more about Guernsey please visit www.guernseyfinance.com