An original version of this article was published by FTSE Global Markets, June 2016.
By Kate Clouston, Guernsey Finance
The pool of investable assets in Asia is predicted to reach $U14.5trn by 2020. Surpassing the United States for the first time, China is currently home to 596 billionaires--an 80% increase since 2013. Motivated by others' success, entrepreneurs and VCs in China are more ambitious than ever. Guernsey Finance's recent visit to Asia to open Guernsey's representative office in Hong Kong highl ighted two unique sets of needs. Kate Clouston, Director of International Business Development at Guernsey Finance, reports on the Asian market landscape and its perception of offshore finance centres such as Guernsey.
Firstly, Asian UHNW and HNW individuals are increasingly motivated to achieve asset protection for future generations, thereby requiring more sophisticated wealth management expertise and structures as well as a stable environment. Secondly, as the market develops in China and the government's economic reform agenda continues, entrepreneurs will soon be looking for ways to expand their international reach. Across Asia, the message was positively received that Guernsey can be a market leader in both areas, due to its unique capabilities, legal and regulatory environment and our most valuable asset--human capital.
Increasingly, those setting up structures in Guernsey are attracted by the available expertise, the quality of the service providers, international links and good business practices. While perhaps in the past jurisdictional choice was primarily driven by price and immediate availability, structures are no longer necessarily tax-driven either--the `flight to quality' is more important than ever. For those concerned with asset protection, Guernsey is the ideal location, enjoying a world-leading regulatory environment. The tremendous amount of work by the Guernsey Financial Services Commission (GFSC) towards Anti-Money Laundering (AML) regulation in particular has meant that Guernsey's high standards continue to surpass expectations and requirements. The MONEYVAL report published in January 2016 highlighted not only the AML standards at work here but also the ability to facilitate international cooperation. Guernsey is also one of few international jurisdictions to regulate trust companies, adding an additional layer of safety and scrutiny to a concept still nascent in Asia.
A well-regulated environment is not often a business-friendly environment--Guernsey strikes the right balance of oversight and flexibility. Certainly its development over the past five decades has enabled the finance sector to grow safely and effectively. Guernsey is home to more than $350bn in investment funds and its practitioners are well versed in property investment and real estate--an enduringly attractive asset class to Asian clients.
For investors in Asia looking to improve their global reach, we found that they were looking for ideal conduits to facilitate capital flows. Guernsey is one of few jurisdictions that can transact business from Asia and North America in the same business day. Geographic and cultural proximity to the City of London also provide opportunities in key areas, such as London Stock Exchange (LSE) listings.
The number of Guernsey-incorporated entities listed on the LSE reached 129 at the end of 2015, making Guernsey the number one jurisdiction for non-UK listings. After the UK, Guernsey was also home to the highest number of new entities listing across the LSE's three markets. While complicated market conditions remain in China, short-term volatility translates to more opportunities in the longterm.
The expected GDP growth this year is 6.5%, a mere .03% below previous forecasts. We understood from conversations with leading practitioners in the region that the next two to three years are likely to be a period of investment in China. The booming entrepreneur and VC space in Beijing, while currently more inward looking, will also eventually look towards diversification and new routes of international expansion.
For Asian entrepreneurs seeking investment from international investors, we were pleased to explain how Guernsey could provide an ideal platform either by structuring an entity to list on the LSE, thereby providing access to London capital markets whilst maintaining tax neutrality, or structuring an initial listing on the Channel Islands Securities Exchange (CISE).
By listing with the CISE, headquartered in Guernsey, the potential pool of investors grows exponentially. A high level of stakeholder comfort with CISE as a platform is often cited as a key driver for gaining further investment. The CISE hosted its first Chinese issuer in 2014 when China Cinda Finance issued three series of notes with an aggregate principal amount of $500m, which were then sold to life insurance companies, securities firms and asset managers. Guernsey-domiciled entities can also be listed on Euronext Amsterdam, stock exchanges in Frankfurt, Australia and Toronto, among others, as well as the Hong Kong Stock Exchange (HKEx).
This unique set of needs in Asia is matched by Guernsey's capabilities. We have long recognised the opportunities in Asia, opening an office in Shanghai almost a decade ago, and a new office in Hong Kong in March of this year. Guernsey businesses operate across virtually all of Asia, including Hong Kong, Singapore, Malaysia, Vietnam and Thailand, to name just a few. This has led to an understanding and appreciation of Asian cultures that is absolutely essential if a meaningful relationship is to develop. As Guernsey's capabilities and unique attributes gain acknowledgement across Asia, clients from that part of the world will derive great benefit from recognising our role not only as a safe harbour in times of uncertainty, but also a solid conduit to international capital markets.