Tradition amid change
In a time of unprecedented change, Guernsey offers a strong heritage in fund
servicing as well as innovative solutions. By Fiona Le Poidevin
Stuart Lawson, head of regulatory change and market
development at Northern Trust in Guernsey, recently
wrote an article highlighting the significant changes
impacting the asset servicing market. He pointed to the ongoing
drive to de-risk banks, enhanced reporting triggered
by the US’ Foreign Account Tax Compliance Act (FATCA)
and the implementation of the European Union’s Alternative
Investment Fund Managers Directive (AIFMD) as providing
fund administrators and custodians with new process and
In this time of unprecedented change, asset managers
will be glad to know that Guernsey is a jurisdiction that not
only has a strong heritage in domiciling and servicing funds
but also is able to offer innovative solutions in a changed
landscape, especially for private equity real estate platforms.
Drivers of Guernsey’s success as a leading domicile for property
investment platforms include a streamlined regulatory
process together with flexible company law, in particular with
regard to distributions, which is based on a straightforward
solvency test. Furthermore, Guernsey incorporated property
structures can be used to speedily access many international
stock exchanges, notably the London Stock Exchange (LSE).
In recent times, Guernsey has seen investment fund structures
being utilized for financing and refinancing arrangements
connected with property and distressed debt on real estate.
For example, Starwood Capital Group established Starwood
European Real Estate Finance, a Guernsey-domiciled closedended
investment fund, with the aim to originate, execute and
service a diversified portfolio of commercial real estate debt
investments in liquid markets in the UK and Continental
A unique approach
AIFMD has been a particularly controversial piece of legislation.
It has contributed to a feeling among non-EU fund
managers that there is simply too much regulation in Europe,
with some even referring to the new regime as ‘fortress
Europe’. This has increased as we have approached and passed
the July 22 deadline, which marked the end of the transitional
period for EU countries to implement AIFMD.
Many managers have specific concerns that marketing
funds into Europe has been made more challenging by
AIFMD due to the scope that individual national regulators
have in the application of the rules. Additional complexity and
compliance is adding another layer of administration, which
is driving up costs that may be passed on to investors.
Rather than being part of the problem, however, Guernsey
is part of the solution. While the island is in Europe geographically,
it is not in the EU and therefore is not required
to implement AIFMD. Although a large part of the domicile’s
business relates to the EU, it also handles a substantial amount
of funds business that 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, and there is a new opt-in regime, which is fully
AIFMD compliant for those who require it.
EXPERT COMMENTARY | GUERNSEY
Starwood European Real Estate
LSE listing date: December 2012
Market cap: £246 million, as of July 2014
30 PERE | 2014 PRIVATE REAL ESTATE FUND SERVICE GUIDE
This 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. Meanwhile, for
managers wishing to market into Europe, Guernsey provides
a European platform that is not actually in the EU. As such,
there is an opt-in regime that is fully AIFMD compliant should
this be required, although the NPP route is being favored by
many as it means little or no change to how things were done
For those managers with elements of EU and non-EU business,
parallel structures can be utilized. It will be possible to
place non-EU business in a parallel or feeder structure for
which AIFMD compliance would be neither required nor necessary
– a scenario that should present significant cost-saving
The point is that Guernsey’s dual regulatory regime provides
optionality that allows clients to be serviced in the manner
most appropriate to their specific commercial circumstances.
Given that Guernsey fund structures do not need to apply to
EU regulations and directives, they will provide a more cost
effective option for marketing into non-EU jurisdictions,
including the important markets of the US, Asia, the Middle
East, Latin America and other emerging markets, which
European jurisdictions such as Luxembourg and Dublin will
not be able to provide.
A matter of substance
Meanwhile, the post-crisis environment 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, with corporate
governance enhanced by having a significant pool of experienced
Guernsey has administrators ranging from major international
names, such as Northern Trust, State Street and Citco,
to specialist independent private equity and real estate administrators.
Major global custodians are based in Guernsey and
are being supplemented by specialist administrators that are
establishing Guernsey-based depositories to service private
equity and real estate funds, which previously have not had
the requirement for a depository but can take advantage of a
‘depository-lite’ regime for non-financial assets under AIFMD.
The quality of fund servicing in Guernsey is evidenced by
the fact that providers now administer nearly $150 billion of
open-ended funds domiciled in other jurisdictions, typically
the Cayman Islands or Delaware, where there may be local
substance challenges. Some sponsors also have decided to
re-domicile funds to Guernsey, which is facilitated by flexible
Accessing the capital markets
Furthermore, Guernsey has carved out a niche as the domicile
of choice for establishing structures to access global capital
markets. Entities incorporated in Guernsey can list on a number
of international exchanges, including those in Dublin,
Frankfurt, Toronto, Johannesburg and Hong Kong, as well
as NASDAQ, Euronext, the local Channel Islands Securities
Exchange and the LSE.
In fact, LSE figures show that there are more Guernsey
entities listed on its markets than from any other jurisdiction
globally, excluding the UK itself. There currently are 122
Guernsey investment funds and trading companies on the
LSE with a combined market capitalization of $60 billion.
This includes listed private equity, infrastructure, cleantech
and real estate funds, such as the Japan Residential Investment
Company, the European Real Estate Investment Trust and
F&C Commercial Property Trust.
Guernsey’s position as a center for listed vehicles also reaffirms
its strong commitment to corporate governance.
Indeed, the two largely go hand-in-hand as companies are
subject to and adhere to the rules applicable to the various
international stock exchanges on which they list.
The asset servicing sector is undergoing significant change,
but Guernsey is a well-established and thriving fund domicile
and service center that is able to help address these new
challenges. The experience and expertise that has been built
up by fund administrators, custodians and the supporting
infrastructure of multi-jurisdictional law and global accountancy
firms within the private equity and real estate sector is
In addition, Guernsey offers a solution from a domicile with
significant substance, high standards and a global reach and
which is based in a European time zone with access to the
EU market but without the administrative and cost burden
of AIFMD and other European regulations. It is against this
background that asset managers should consider whether it
would be remiss of them not to consider establishing and servicing
their private equity real estate funds from Guernsey.
ABOUT THE AUTHOR
Fiona Le Poidevin is the chief executive
of Guernsey Finance, the promotional
agency for Guernsey’s finance industry.
Her role includes business development
and promotion of the island’s finance
industry in its target markets, including
Europe, the US and the emerging
markets; technical research to support
promotional activities; and liaison with
industry associations and government.
For more about Guernsey, please visit
F&C Commercial Property Trust
LSE listing date: July 2009
Market cap: £914 million, as of July 2014
2014 PRIVATE REAL ESTATE FUND SERVICE GUIDE | PERE 31