The family office concept has been around for decades, but it is only in recent years that the industry has begun to expand at an impressive pace with new family offices opening every month and the value of assets increasing.
This is certainly true in Guernsey where providers have reported considerable growth in the number of family offices being established, both in the form of independent units with their own physical presence and those accommodated within existing licensed fiduciaries.
There is an appreciation of the fact that Guernsey has its own elected parliament, a stable system of government and a mature and sophisticated legal system that, through a combination of statute and common law, provides certainty and predictability in terms of the ownership and operation of its wealth structures and investment vehicles. The Island’s close proximity to the City of London and mainland Europe, as well as a convenient time zone, also add to the Island’s appeal.
In addition, as a top tier International Finance Centre (IFC) with more than 50 years’ experience of servicing private and corporate clients, Guernsey has unparallelled capability in dealing with the inherently varied nature of family office structures.
The Island boasts 150 licensed fiduciaries ranging from multinational organisations to independent, boutique operations, all specialising in the preservation of individual and family wealth through a range of proven operating models that are legally robust and tax efficient. These fiduciaries are complemented by the Island’s broader financial services industry, including banking, investment and insurance sectors as well as a strong network of professional support services, including multi-jurisdictional law firms and global accountancy practices.
In addition to the well known trust route, individuals and families are able to structure their wealth via corporate vehicles including the Private Trust Company (PTC) and Managed Trust Company (MTC) which are utilised to hold assets and investments of all types. PTCs have become particularly popular in recent years as wealth creators seek to establish increasingly portable structures for their assets.
The introduction of the purpose trust into Guernsey law in 2008 further enhanced the Island’s offering by permitting the creation of a trust to fulfil a specific purpose other than simply benefitting the beneficiaries. In fact, a purpose trust does not require any beneficiaries. It is perhaps unsurprising therefore that purpose trusts have been used for the specific purpose of owning shares in PTCs, thereby effecting a separation of ownership between the PTC and the family it is formed to benefit.
Similarly, the recent introduction of the Guernsey foundation has attracted further interest from those families seeking a civil law alternative to the trust. The Guernsey foundation is an incorporated entity with a separate legal personality. As such, on face value, it looks more like a company than a trust. However, unlike a company, it does not have shareholders to whom the board are accountable. Instead, the foundation holds assets (in its own name) on behalf of beneficiaries, particular purposes, or both, in accordance with the foundation’s constitution.
The Protected Cell Company (PCC) has also become increasingly popular as a vehicle for holding family assets. Guernsey pioneered the PCC concept in 1997 and it is now used across investment fund platforms, captive insurance vehicles and structured products.
A pertinent benefit of utilising cell companies is that they allow for consolidated reporting which means that the patriarch can have one report or statement showing his or her wealth and its sources. This compares with having to prepare a multitude of company accounts (possibly spanning a number of jurisdictions) in order to see the financial position.
Family office investment funds
Guernsey has a thriving funds industry with the total net asset value of funds under management and administration reaching £286 billion at the end of June 2013. This means that the Island is perfectly positioned to handle an increased focus on family office allocations to investment funds and private equity.
Corporate and limited partnership structures are utilised to hold assets and investments of all types, with Guernsey investment platforms managing investments in North America, Europe, Latin America, Asia Pacific, and the emerging markets. Therefore, there is the option to invest in existing Guernsey platforms as well as the option to establish a new or bespoke investment platform for larger family offices.
The growing global demand for family office wealth management solutions will test the adaptability of service providers going forward and put increased pressure on IFCs to deliver an even more practical and efficient product, but it is a challenge that Guernsey is more than ready for.