Wed, 20/11/2013 - 14:04
By Fiona Le Poidevin – The next 12 to 18 months will be crucial in determining the implementation of the Alternative Investment Fund Managers Directive (AIFMD) and therefore, the implications for investment houses. That said, already, research has indicated that a significant number of investment houses are considering taking steps to put themselves beyond the potentially onerous requirements of AIFMD by establishing their funds in non-EU jurisdictions, such as Guernsey.
However, this can only be achieved if there is sufficient substance in the jurisdiction to demonstrate that not just the fund but also the manager can be genuinely considered to be based outside the EU. So called ‘letter box’ entities cannot claim to be managers and substance will be required where a manager is claiming to be domiciled. As such, this might encourage investment houses, such as hedge fund groups, to strengthen their presence within a third country like Guernsey.
Indeed, a recent article in the Financial Times said that it was for precisely these reasons that Brevan Howard – the world’s third largest hedge fund manager – is growing its presence in a number of locations outside the EU, including the Channel Islands. Other similar groups may be thinking along similar lines and certainly it is my view that AIFMD acts as another catalyst for hedge fund managers to relocate not just their businesses but themselves to a jurisdiction such as Guernsey.
Guernsey has evolved its regulatory regime so that business which does not touch the EU can avail of a non-AIFMD route (based on Guernsey’s existing regulatory framework), while EU markets can be accessed through National Private Placement (NPP) regimes or the Island’s opt-in AIFMD equivalent regime. This means that Guernsey is almost uniquely positioned to provide a variety of options for servicing both EU and non-EU business in the most effective manner from a European time zone.
Guernsey also has an advantage over many of its competitor jurisdictions in that there is already significant substance to many of the existing arrangements which investment houses have in the Island. For example, Bluecrest Capital Management – Europe’s third largest hedge fund manager – not only has several funds domiciled in Guernsey but it has staff employed within its headquartered offices in the Island.
However, while on the one hand, AIFMD might encourage investment houses to build up their substance and therefore take back in-house some of the functions that have previously been outsourced, on the other, the increasing burden of regulation globally – including AIFMD – might lead them to seek out greater support to meet these demands.
Again, Guernsey is very well placed because we have some 50 fund administrators, ranging from globally renowned names to independent, boutique operators, who have significant experience and expertise in supporting the various needs of the fund promoters. Indeed, many investment houses that have their funds domiciled in other jurisdictions, such as the Cayman Islands, actually have them administered in Guernsey.
Today, there is nearly £100 billion worth of ‘non-Guernsey’ open-ended funds managed or administered in the Island, with more than half represented by hedge funds or funds of hedge funds, including a significant number of the BlueCrest range. The quality of service in Guernsey is such that some investment houses which started by using the ‘non-Guernsey scheme’ route have migrated funds to, or established new funds in, the Island.
Choosing Guernsey offers the advantage of having funds domiciled in a jurisdiction where there are ‘fast track’ routes to market, access to global capital markets, flexible cell company legislation that provides for ‘incubator’ vehicles and a corporate tax regime which means that the effective rate for both funds and fund management groups is 0%. In addition, the Island has robust regulatory and tax transparency standards, which are increasingly important considerations for investors in the post-crisis environment and as such, have helped drive growth in the funds business in Guernsey.
The net asset value of all funds under management or administration in Guernsey has risen more than 5% in the last year to £286 billion, with around a third comprising hedge funds or funds of hedge funds as well as property and private equity funds. Global private equity houses such as Apax, BC Partners, EQT, Mid Europa, Permira and Terra Firma have offices and staff based in Guernsey. Terra Firma is not only headquartered in Guernsey but its Chairman, Guy Hands, also lives on the Island and he has been joined by another well-known figure in that sector, Jon Moulton, Chairman of Better Capital.
This evidence tells us that Guernsey is an attractive destination for basing a business as well as key personnel and AIFMD is set to become another catalyst for hedge fund groups to make the move.
Fiona Le Poidevin is Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry.
Address: PO Box 655, North Plantation, St Peter Port, Guernsey, GY1 3PN
Phone: +44 (0) 1481 720071
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