Guernsey, KKR and the Euronext link
Few practitioners in the Guernsey fund industry would dispute that the establishment of a closed-ended private equity vehicle by venerable US buyout firm Kohlberg Kravis Roberts and its listing on the Euronext Amsterdam exchange last year was a pivotal moment for the island's alternative funds industry.
At a stroke, Guernsey became the jurisdiction of choice for the domicile of vehicles launched by private equity and hedge fund managers to attract permanent capital, offering sponsors a respite from the near-constant round of fund-raising as their existing vehicles reach capacity and providing investors with the option, rare for a hedge fund and even more so for private equity, of daily liquidity on a stock market.
This new prominence for the island, which has a long-established but previously low-key expertise in the domicile and servicing of closed-ended fund vehicles, has come at a time when interest in permanent capital vehicles has never been greater, with managers on both sides of the Atlantic looking to the capital-raising potential of the public markets. This has prompted initiatives such as the London Stock Exchange's plans to create a specialist market for alternative investment funds.
Guernsey has always enjoyed a flow of business from the US to varying degrees, but the pace has picked up significantly following the launch of KKR Private Equity Investors, which raised USD5bn when it was launched in April 2006. This was a landmark deal in the private equity sector because it was the first fund to be listed on Euronext following the conclusion of a memorandum of understanding between Guernsey and the Netherlands.
The agreement made Guernsey one of one of only four jurisdictions in the world where the Dutch regulator, the AFM, has ruled that home supervision is sufficient to dispense with the requirement for investment funds to obtain a licence in the Netherlands if they wish to list on the Amsterdam exchange.
Having spent a total of 18 months preparing the KKR deal, a large part of that in determining and meeting the requirements of Euronext and the Dutch regulator for the vehicle that was to be established, Carey Olsen encouraged the Guernsey Financial Services Commission to reach agreement with the AFM.
KKR wanted not only European exposure but to create liquidity in the market, an ambitious task because a listed private equity vehicle on such a large scale was unknown. The firm chose Guernsey because of its reputation and location, and because the commission's relationship with the Dutch regulator held out the possibility of an agreement that would avoid the need for supervision in the Netherlands.
Having acted for the issuer, within two weeks of the deal being completed Carey Olsen had received around 15 enquiries from KKR's competitors, who were all interested in creating a similar vehicle. In the end most of these plans failed to come to fruition, in part because the KKR issue was so large that investor demand for this kind of product was temporarily sated.
However, over the past year a number of similar deals have been completed for alternative funds including CMA Global Hedge, a Guernsey protected cell company that attracted USD402m for a fund of hedge funds listed on the London Stock Exchange, and MW Tops, which raised EUR1.5bn on Euronext for two underlying hedge funds run by London manager Marshall Wace.
Graham Hall is managing partner of the corporate group with Carey Olsen in Guernsey
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