Private equity firms get the Guernsey habit
Having already built up a reputation as one of the best offshore centre for private equity business among fund promoters and their advisers, Guernsey is benefiting from growing volumes of business thanks to the global expansion of the sector, which has seen some of the industry pioneers launch as many as five or six funds over a decade with steadily increasing volumes of capital.
Once a private equity house has made the decision to use Guernsey as a domicile, it's rare for them to change jurisdiction for the launch of subsequent funds. When they have built up relationships with auditors, administrators and tax experts, managers generally use the same providers as they develop their business. Meanwhile, the island's private equity activity is also being boosted by newcomers to the sector.
Initially the Guernsey private equity industry attracted business principally from leading European and global players such as the Carlyle Group, BC Partners and Apax, but in recent years dealmakers spinning out of larger firms to set up their own start-up private equity operations have been coming to Guernsey as well, having developed contacts on the island with their previous employers.
It's more than just convenience and habit that keep some of the world's leading private equity professionals coming back to Guernsey. The island is one of the top choices for UK gatekeepers because of the experience and expertise possessed by its administrators, accountants and law firms, and the fact that establishing and servicing private equity structures on the island is now a tried and tested process with a fast and efficient turnaround.
The legal environment has improved greatly over the past few years following the introduction of the Registered Funds regime, which replaced the existing supervisory structure based on regulation of the product. The new regime is based on regulation of the service provider and offers a level of protection appropriate to the kind of investors that private equity funds attract, such as pension funds and other institutions.
While Guernsey has long enjoyed an impressive reputation among private equity houses in the UK and Europe, it gained fresh momentum in the US and beyond two years ago with the launch of the USD5bn KKR Private Equity Investors listed vehicle. The deal awakened interest in the island from managers all over the world and put it on the map as a domicile for private equity funds listed mostly on Euronext Amsterdam or the London Stock Exchange.
Apart from the island's ability to offer a tax-neutral environment for managers and investors, the KKR launch hinged on a ground-breaking agreement between the Guernsey Financial Services Commission and the Dutch regulatory authority that exempted Guernsey funds from additional regulation in the Netherlands when listing in Amsterdam.
The past couple of years have seen various significant developments for Guernsey. First, while private equity houses are continuing to structure and launch classic buyout funds, they have also have sought to diversify into other related areas such as infrastructure and opportunistic distressed debt funds.
Secondly, managers are increasingly starting to set up middle-office operations on the island. In many cases the private equity houses have recruited from their administrators experienced staff with whom they been working for a number of years, and a key benefit is the ability to provide continuity for their investors.
Rob Hutchinson is a partner with KPMG in Guernsey
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