Islands set to benefit from focus on substance
By Ross Youngs - In the current global environment, managers and regulators are focusing determinedly on the substance of activities in offshore financial jurisdictions, the quality of service providers and the ability to deliver increasingly complex business with the requisite regard to risk. Jersey and Guernsey are well placed to thrive, thanks to genuine intellectual capital, effective and flexible regulation, good technological infrastructure, robust operating models and experience built up over decades.
The islands’ global reputation as international financial centres has been bolstered by the influx of global brand names alongside specialist industry providers. Both have demonstrated their commitment through substantial physical activity and commercial presence in the islands.
Investors in a fund domiciled in the islands can be confident it is actually administered and run by a majority of locally-resident directors with the experience and background to carry out their duties effectively, with good functionary support. Jersey and Guernsey have attracted top global banks, legal and accounting firms, asset managers and fund promoters with strong governance and talented labour pools, a concentration and mix of business providing a varied and broad base of skills.
The islands’ prominence in the global fund industry is not new, accounting for around two-thirds of European private equity fundraising over the five years to 2009, for example. Private equity has been attracted by an evolving regulatory framework and range of fund vehicles that reflect the needs of investors and fund promoters and allow new funds to be launched or further capital raised comparatively quickly, with no loss of substance, control and quality.
With around two-thirds of GDP on each island generated directly or indirectly by the financial sector, they have naturally developed a specialised workforce. Local staff can tap into the expertise of their employers’ international networks, which can also offer any capabilities not available in the islands. Both Jersey and Guernsey attract talented individuals from all over the world – witness the number of Australians and New Zealanders, and the extensive South African community.
The authorities in Jersey and Guernsey also allow firms to draw on resources in other jurisdictions subject to well-structured policies on outsourcing and oversight. This ensures effective mind, management and operational control is maintained in the islands while allowing flexibility in the operating model to maximise efficiency for both the functionary and ultimately the client. Elements of fund administration, accounting and transfer agency functions can be allocated to other locations to benefit from industrialised processes, cost arbitrage or specialised skills without losing the intimacy of the offshore model and accountability of the island-based provider.
Island firms’ recognised expertise in administering private equity structures has made involvement in the fast-growing area of infrastructure and energy investment a logical next step. In Jersey or Guernsey managers can find skills and expertise in servicing these structures, talk to top-class lawyers who can draft a prospectus and draw up an operating structure, and retain administrators whose track record and experience inspire confidence.
The Channel Islands also have first-mover advantage in areas as diverse as ‘green’ investments, Shariah-compliant funds, distressed debt and life settlements, as well as ground-breaking capital-raising structures; for example, private equity managers moving into debt investment classes through listed closed-ended vehicles. Innovation and entrepreneurialism are key advantages for Jersey and Guernsey in an ever more competitive business environment.
Ross Youngs is head of sales with BNP Paribas in the Channel Islands
Click here to download the Hedgeweek Special Report: Implementing investment strategies in the Channel Islands 2010
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