With more than 50 years' experience providing financial services to clients around the world, Guernsey Finance’s China Representative, Wendy Weng (pictured), discusses how the island's funds industry can offer a gateway to the UK for Chinese clients…
With several hundred Guernsey service providers, supported by a network of professional services, including global accountancy practices and multijurisdictional law firms, there is significant infrastructure and expertise available to service Chinese clients who are seeking to invest into the United Kingdom (UK).
Chinese corporate entities can use Guernsey’s offering in two principal ways: to establish a Guernsey domiciled investment fund which invests into the UK; and/or to establish a Guernsey based entity to access UK capital markets.
INVESTMENT FUNDS
Guernsey has an investment sector with almost US$0.5 trillion worth of funds under management and administration. The Island has a proven operating model where global investment houses use legally robust and fiscally neutral structures, such as companies and partnerships, to hold a wide range of assets spread around the world. Guernsey specialises in domiciling and servicing closed-ended funds investing into alternative asset classes, such as private equity, real estate, (renewable) energy and infrastructure focused on the UK market.
Due to the regulatory restrictions (including foreign exchange restrictions), Chinese investors are usually not able to invest offshore other than via the Qualified Domestic Institutional Investors (QDII) regime.
However, the QDII investment funds are issued to the general public and are not tailored to the needs of specific investors. The Qualifying Domestic Limited Partnership regime provides a new channel for Chinese domestic capital of institutional investors and high net-worth individuals to be invested offshore.
Guernsey’s reputation in the Chinese market is already illustrated by the fact that it was home to the first ever Renminbi focused bond fund which was established in 2007 as a protected cell company by Stratton Street Capital. Using Guernsey also offers the comfort that the Island’s regulatory regime for investment funds is familiar to the Chinese authorities. Guernsey’s financial services regulator, the Guernsey Financial Services Commission, signed a Memorandum of Understanding (MoU) with the China Securities Regulatory Commission (CSRC) in November 2013. In addition, Guernsey has grown its links with both the Asset Management Association of China (AMAC) and the China Association of Private Equity (CAPE).
At the 6th Global Private Equity Forum in Beijing in December 2014, Mark Huntley, Managing Director of the Guernsey-headquartered Heritage International Fund Managers Limited, was a panelist and the only Western delegate on the GP/LP session.
He said: “Guernsey has recently entered into a number of agreements and Memoranda of Understanding with various bodies in China and is ideally placed to forge a long standing relationship with the private equity industry in China.” Heritage is engaged with a number of Guernsey domiciled investment funds investing into China and is also working with Chinese fund managers developing fund and investment projects to tap into European opportunities.
CORPORATE LISTINGS
A major advantage of a Guernsey incorporated entity is that it can be used to access global capital markets. Guernsey vehicles can list on a range of different stock exchanges around the world, such as Australia, Frankfurt, Paris and Toronto as well as Hong Kong, the local Channel Islands Securities Exchange and the London Stock Exchange (LSE). Indeed, Guernsey has more entities listed on the LSE than any other jurisdiction globally, excluding the UK. Notable Guernsey entities that listed on the LSE during 2014 included the largest AIM listing of last year. The real estate focused Market Tech Holdings Limited combined a £750 million initial public offering with an oversubscribed placing which raised £100 million before expenses.
CONCLUSION
These type of developments further enhance Guernsey’s position as the leading jurisdiction for non-UK LSE listings, particularly investment funds. It also showcases why Guernsey is the ideal gateway for Chinese managers wanting to access capital to invest into the UK
An original version of this article was published in Asia Venture Capital Journal, July 2015.
