With the environment still challenging for fundraising, Fiona Le Poidevin (pictured), Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry, explores the options for managers.
The current economic climate remains a challenging one from a fundraising perspective.
Guernsey, like elsewhere in the world, is not detached from this reality. However, despite this landscape, the jurisdiction continues to demonstrate its popularity as an international finance centre and as a leading funds destination for promoters, managers and investors.
Figures from the Guernsey Financial Services Commission (GFSC) show that the total value of the funds business in Guernsey grew by more than GBP15bn last year to take the net asset value of funds under management and administration in the island to GBP276.8bn at the end of December 2012. This represents an increase of GBP15.4bn (5.8%) on the year previous, growth of GBP19.4bn (7.5%) on the same time two years ago and a rise of GBP92.6bn (50.3%) since the end of December 2009.
The fundraising challenge
Starwood European Real Estate Finance Limited is one example of Guernsey’s continuing popularity. The Guernsey-registered fund raised GBP228.5m in its latest share offering on the London Stock Exchange (LSE) main market at the end of last year – easily exceeding its initial fundraising target of GBP200m. It shows how confidence in Guernsey investment structures remains high, particularly with a promoter, such as Starwood, using the island for the first time as its jurisdiction of choice.
Guernsey practitioners themselves recognise that fundraising is posing a more difficult challenge than ever before. Some who have spoken to us at Guernsey Finance recently have highlighted how it is those funds with a proven track record that are finding most joy in enticing investors and who have become more nervous and cautious following the global financial crisis. Others said the trend over the past six months was for increased capital raising in infrastructure and debt funds as well as those hedge funds that had demonstrated a strong track record. AO Hall Group Partner Sam Shires, explained that the funds which were getting away were those coming from managers with a well-established base of investors.
In the opinion of Carey Olsen Partner, Tom Carey, the number of larger, more established private equity houses that have closings slated for 2013, has resulted in difficulties for smaller or new promoters in raising capital unless they have a well-established track record in a specific investment space.
This is not to say that there isn’t an opportunity for smaller and perhaps more innovative funds. Guernsey fund administration and fund management firm Dexion Capital launched DCG Iris in 2012, a closed-ended investment company, on the London Stock Exchange. DCG Iris initially raised GBP40m, but this has now moved past GBP50m following a further round of fundraising. Dexion Capital executive director Robin Fuller explained that because of its strong performance, Dexion Capital was now looking to do another insurance linked securities fund in 2013. Fuller, like others outside the island have told us, believes part of the reason Guernsey has still been able to attract this type of work is because centres such as London appreciate and respect Guernsey’s expertise in the funds arena, while institutional buyers themselves also feel comfortable with what Guernsey has to offer.
The first London-listed fund initial public offering (IPO) of 2013 saw Carey Olsen along with Heritage International Fund Managers act for ICG-Longbow Senior Secured UK Property Debt Investments Limited.
The fund’s IPO raised more than GBP104m by way of a placing by Investec Bank plc, who acted as sponsor to the company, to institutional investors. _ e company, which has been established as a registered closed-ended collective investment scheme, has a focus on raising, investing and managing funds in UK commercial real estate debt. Its LSE listing is another positive sign for the market as debt is becoming increasingly available from alternative lenders in an environment where banks remain limited in their appetite for lending.
Guernsey’s close ties with the LSE are emphasised by the figures from the stock exchange’s figures to the end of December 2012 that show there are more non-UK incorporated entities listed on its markets from Guernsey than any other jurisdiction globally. The 122 Guernsey-incorporated entities comfortably surpasses the numbers of the major economic powers of the US (43), Russia and Australia (both 31) and India (30). It is also well ahead of competitor centres Jersey (86), Ireland (54), the Isle of Man (52), Cayman (46), Bermuda (44) and BVI (37). Only recently, Oriel Securities Partner Joe Winkley, a widely respected adviser on listed funds, told an audience at a LSE event that he believed Guernsey would continue to dominate as a listing domicile going forward.
As well as the LSE, Guernsey entities can be listed on Euronext Amsterdam, the local CISX which now has more than 5,000 listings – and the Hong Kong Stock Exchange (HKEx), among others.
As a leading international finance centre, Guernsey has built a wealth of expertise and first-class infrastructure for the structuring, management, administration and custody of the widest range of funds. The island plays host to a broad selection of administrators, ranging from independent, boutique providers to large, multinational organisations, many with bespoke IT solutions. Guernsey’s fund industry can also draw on the services provided by the island’s banking, wealth management and risk management sectors.
In addition, it is supported by a comprehensive network of investment, legal, tax, audit, accounting and actuarial advisers, including multi-jurisdictional law firms and global accountancy firms where there is specialist expertise.
The majority of their work relates to Guernsey open and closed-ended funds, which are now promoted and sponsored by leading institutions in more than 55 financial centres globally. Guernsey funds can also be established through a range of flexible investment vehicles such as companies, unit trusts, the Guernsey-pioneered protected cell companies (PCCs), incorporated cell companies (ICCs) and limited partnerships (LPs). Statistics from the GFSC show that a total of 70 new open and closed-ended funds were licensed in the island during 2012. This expertise and infrastructure means that often Guernsey providers are asked to service schemes domiciled in another jurisdiction, such as the Cayman Islands. Statistics from the GFSC show that during 2012, the island’s service providers entered into 25 new contracts to provide either management, administration or custody services to non-Guernsey schemes.
Investors, promoters and managers are also put at ease by Guernsey’s cooperation on issues such as the Alternative Investment Fund Managers Directive (AIFMD). The island was fully engaged regarding the AIFMD from the beginning, demonstrating our knowledge, understanding and commitment to the funds industry.
We intend to operate dual regimes from July 2013, which is the deadline for the AIFMD rules to be transposed into EU law. At a basic level this will enable distribution of Guernsey products into both EU and non-EU countries via normal marketing routes, including EU national private placement regimes where they remain available. In addition, Guernsey is examining the possibility of operating a Guernsey “opt in” AIFM regime in order to access (on a bilateral basis) EU member states that align their private placement rules with the AIFMD. Guernsey will also be engaged in future consultations in relation to how third country ‘passporting status’ will operate from July 2015.
The bottom line is that Guernsey is well prepared for the AIFMD. We recognise that we have clients whose business does not touch the EU at all in terms of management or marketing of funds and it is important that these clients have the choice to elect to fall under the AIFMD regime or remain outside, as is their right. In being able to offer both EU and non-EU solutions from one location, Guernsey will be ideally placed to serve the global fund industry – because while we recognise that Europe remains our main source of business, we also respect the fact that other markets, particularly the emerging markets, offer exciting opportunities.
Another attraction of domiciling funds in Guernsey is that the GFSC has established a reputation for its robust yet pragmatic approach to regulation. For example, ‘fast track’ routes have been introduced which allow for the speedy launch of funds targeted at professional investors and yet, those investors also have the security of knowing that all Guernsey funds are regulated.
In addition, the GFSC ensures that funds follow the appropriate local or international codes of corporate governance and the fact that the island has a pool of experienced and well-qualified non-executive directors reassures investors and promoters that Guernsey service providers are working to the highest standards. Indeed, Guernsey’s position as a well-regulated, cooperative and transparent jurisdiction has been reinforced by the fact that external agencies such as the IMF, OECD and Financial Stability Board (FSB) continue to place Guernsey within the very top tier of leading international finance centres globally.
Open-ended hedge funds
Just some of the fund managers that have been attracted to Guernsey by its funds regime include the likes of Ashmore, Credit Suisse, M&G and FF&P – all of which currently have Guernsey open-ended funds. BlueCrest Capital Management, one of Europe’s largest hedge fund managers, even relocated its headquarters and fund servicing platform to Guernsey, while Pershing Square Capital’s latest hedge fund, Pershing Square Holdings, is a Guernsey open-ended registered collective investment scheme.
However, while the open-ended sector remains a key part in the island’s funds landscape, in recent times the greater growth has been witnessed in Guernsey’s private equity industry. The island’s pedigree and proven track record has attracted a wide range of managers, promoters and investors to use the island. Private equity and venture capital have experienced particularly strong growth in recent years, reaching more than GBP81bn at the end of December 2012 – up nearly GBP8m on the same time 12 months previous and more than 20% up compared to the end of December 2010.
Private equity leader
Guernsey’s expertise in the private equity space was confirmed by a Private Equity News and State Street survey, in which 61% of chief financial officers who responded said the island was their preferred destination for private equity outsourcing.
The island’s reputation as a leading private equity funds domicile is also highlighted by the fact that promoters of Guernsey-based funds include major names such as Apax, Better Capital, Cinven, Coller Capital, EQT, Permira and Terra Firma. Many have established their own operations in Guernsey and some, such as Terra Firma, have made Guernsey their headquarters.
Leading private equity figure Jon Moulton, a panelist on our keynote debate at this year’s Guernsey Funds Forum, is a big advocate of the island’s funds industry. The Better Capital chairman, who also owns a home in the island, regularly describes Guernsey as a prime location for private equity and one that offers a superb range of administration and professional services for clients.
So while it is an inescapable fact that fundraising remains a more protracted process than it has been in recent years, Guernsey has not in any way been sidelined by the more selective and demanding funds landscape. We remain keen to showcase our expertise, innovation and reliability as an international funds centre.
An original version of this article was published in the HFM Week, Guernsey Supplement, May 2013.