This year was the third in a row that Guernsey Finance has sent
a team to an investment funds conference in Boston.
Attending SuperReturn in June, I was struck by the number of
private equity houses who are now concentrating on investing
solely into the US market and, in many cases, avoiding Europe.
Albeit the domestic US market is currently outperforming many
others, the financial crisis in the Eurozone means that there are
investments in Europe offering upside and US managers will still
pursue those niche opportunities where there is a clear case for
Feedback from the managers at the conference was that there
is simply too much regulation in Europe with some citing it as
‘fortress Europe’. This includes specific concerns that
marketing funds into Europe has been made more
challenging by the European Union’s Alternative Investment
Fund Managers Directive (AIFMD). The scope that individual
national regulators have in the application of the directive is
adding complexity and compliance is adding another layer of
administration which is driving up costs that may have to be
passed to investors.
However, rather than being part of the problem, Guernsey
is part of the solution because while the Island is in Europe
geographically, it is not in the EU and therefore, is not required
to implement AIFMD. A large part of our funds business relates
to the EU but we also have a substantial amount which does not
touch the EU at all.
As such, Guernsey has introduced a dual regulatory regime
whereby it is possible to continue to distribute Guernsey funds
into both EU and non-EU countries: the existing regime remains
for those investors and managers not requiring an AIFMD fund,
including those using EU National Private Placement (NPP)
regimes and those marketing to non-EU investors; as well as a
new opt-in regime which is fully AIFMD compliant.
The Guernsey model
The approach means managers and funds with no connection to
Europe can continue to use Guernsey’s existing regulatory rules
which are completely free from the requirements and costs
associated with AIFMD.
For managers wishing to market into Europe, Guernsey provides
a European platform but one which is not actually in the EU.
Indeed, the NPP route is being favored by many as it means little
or no change to how things were done before AIFMD.
For those managers with elements of EU and non-EU business,
can be utilized. It will
be possible to place
non-EU business in
a parallel or feeder
structure for which
would neither be required nor necessary. The point is that
Guernsey’s dual regulatory regime provides optionality.
The post-crisis environment, including AIFMD, has brought
about greater scrutiny of structuring arrangements and in
particular, issues of substance. Unlike some competitor
jurisdictions, Guernsey has the advantage of significant
substance already being present within many existing
structures. Corporate governance is enhanced by having a
significant pool of experienced non-executive directors.
Global private equity houses Apax, Apollo, BC Partners, Coller
Capital, HarbourVest, Pantheon and Permira have their funds
domiciled and serviced in Guernsey (with a number also having
offices and staff present).
Guernsey has administrators ranging from major international
names such as Northern Trust, State Street and Citco to
specialist independent private equity administrators. Major
global custodians are based in Guernsey and they are now being
supplemented by specialist administrators who are establishing
Guernsey-based depositories to service private equity and real
estate funds which have not previously had the requirement for
a depository but who can take advantage of a depository-lite
regime for non-financial assets under AIFMD.
Guernsey’s funds industry now manages and administers more
than 1,000 funds valued at nearly half a trillion US dollars, with
the net asset value of private equity funds increasing 6.2% over
the year. Guernsey domiciled investment funds are distributed to
all corners of the globe.
Quality of service in Guernsey is evidenced by the fact that our
providers now service $150 billion worth of open-ended funds
which are domiciled in other jurisdictions, typically the
Cayman Islands or Delaware, where there may be local
substance challenges. Certain promoters have also decided to
re-domicile funds to Guernsey which is facilitated by flexible
Guernsey’s strong ethos of corporate governance is also
demonstrated through its position as a center for listed vehicles.
London Stock Exchange (LSE) figures show that there are more
Guernsey entities listed on its markets than from any other
jurisdiction globally (ex-UK); there are currently 125 Guernsey
investment funds and trading companies on the LSE with a
combined market capitalization of $58 billion.
US managers are of the view that regulation is making it
especially difficult to market funds into the EU. Guernsey offers
a solution based in a European time zone with access to the
EU market but without the administrative and cost burden of
AIFMD and from a jurisdiction which has significant substance,
high standards and a global reach.
Guernsey is part of the solution
Some US private equity fund managers are avoiding marketing into
Europe due to onerous EU regulation but the fund domicile and
service center of Guernsey offers a commercially aware and pragmatic
solution, says Fiona Le Poidevin, Chief Executive of Guernsey Finance.
Tel: +44 (0)1481 720071 | email@example.com | guernseyfinance.com
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opinions expressed are solely those of Guernsey Finance.