Administrators move to centre-stage
The value of Guernsey closed-ended funds under administration increased by GBP17.4bn or 55.8 per cent in 2006 to a new high of GBP48.5bn, helped in part by the trend among investment managers to raise permanent capital on the London Stock Exchange, London's AIM market or Euronext Amsterdam.
Guernsey has become the jurisdiction of choice for fund promoters and sponsors considering listings for a broad spectrum of hedge funds, funds of hedge funds, private equity, syndicated loans and property vehicles. According to ABN Amro research, at the end of last year 37 listed funds of hedge funds and three single-manager hedge funds had a combined market capitalisation of GBP5.9bn, an increase of GBP2.4bn or 70 per cent in 2006.
Public listing enables managers and promoters of funds of hedge funds to take a longer-term investment perspective, and offers greater transparency for shareholders, competitors and market-makers to the underlying portfolio. Investors in closed-ended listed funds also benefit from broader corporate governance requirements, such as the UK Listing Authority's combined code on corporate governance for companies listing on London's Main Market.
Under Guernsey's new Registered Funds regime, closed-ended funds need no longer undergo the established weeks-long consent application process. Instead, consent may be obtained within three days of the administrator certifying to the regulator that the promoter is fit and proper and of satisfactory integrity, solvency and competence.
Historically, when UK and Guernsey legal teams and the lead sponsor guided the promoter through the launch of a fund, the appointment of an administrator was generally one of the last aspects to be decided. This sometimes led to a perception that fund launches were delayed by the administrator's timeframes for conducting due diligence on the promoter and documenting and transitioning the fund.
The new regime, which effectively puts promoter and administrator in partnership from the outset, is welcomed by Royal Bank of Canada. Its team-based approach to prospective fund launches places RBC's business professionals in banking credit, corporate trustee, fund accounting/administration/valuations and global custody and their support teams in front of promoters from the first meeting.
Regular meetings with the client clear up issues such as the roles and responsibilities of the corporate secretary, including the weekly estimate preparation and timeline and agreement of templates for RNS reporting, the treatment of currency hedging valuation and cost across share classes, processing of share conversion programmes and trailer payments, and changes in financial reporting.
Royal Bank of Canada (Channel Islands) acts as custodian to some USD22bn in hedge fund assets and provides ancillary services such as currency hedging and timing and settlement financing to funds. Passive hedging is critical to the performance of fund share class prices and, where a fund is closed-ended, the availability of a credit facility helps the promoter to purchase investments against future redemptions or invoke the discount provisions clause.
RBC's Corporate & Institutional Business operation provides fund administration and global custody services to alternative and traditional investment vehicles at offices in the Caribbean, Guernsey, Jersey, London and Edinburgh. RBC entities in Guernsey act as custodian and fund administrator to the largest London-listed fund of hedge funds to date and as custodian to Alternative Investment Strategies, which became the exchange's first closed-ended fund of hedge funds in 1996.
Stuart Mauger is head of sales and business development for corporate and institutional, British Isles, and based with Royal Bank of Canada (Channel Islands) in Guernsey
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