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Flexibility wins out in a changing environment

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Guernsey has always been recognised as a very stable yet highly flexible offshore jurisdiction with good but not excessive regulation.

Guernsey has always been recognised as a very stable yet highly flexible offshore jurisdiction with good but not excessive regulation. That means that despite blips in the regional or global economy that may result in a slowdown in capital-raising, by virtue of its versatility and its regime Guernsey is always adaptable to any new type of product that suits the changed economic environment.

It’s important to make that the distinction between the island and other offshore jurisdictions that have most of their eggs in the same basket, and are particularly vulnerable to the drying up of one particular area of work, because they may not have the infrastructure or adaptability to support any other type of business. By contrast, Guernsey has historically been ready to accommodate new types of structure or activity provided that the Guernsey parties involved are comfortable with it.

This position stems in part from the situation around 20 years ago when we accepted the alternative products and non-blue chip promoters that our main competitors were refusing. At that time, the retail market for offshore fund centres was much larger than that for alternative products, but Guernsey was ready and willing to provide a home for this business.

Since then the offshore fund industry has largely switched from retail to alternative products, leaving Guernsey in prime position, thanks to the years of experience enjoyed by its law firms, auditors and fund administrators, as well as by the Guernsey Financial Services Commission, which is as comfortable with exotic investment strategies as it with the most conservative treasury-style authorised collective investment scheme.

Other jurisdictions, of course, have also embraced alternative investment funds, but Guernsey continues to enjoy the advantage of the flexibility it has developed in dealing with new or unusual types of product. For example, the island was the first to introduce the protected cell company (PCC), a structure that has now been adopted by most of its offshore competitors and a growing number of onshore jurisdictions.

The PCC, widely used today for fund structures as well as by the captive insurance industry, encapsulates the flexibility and foresight with which Guernsey has over the year welcomed new types of structures and products. The island has been quick to embrace vehicles such as commodity funds, private equity funds and funds of hedge funds – helping to spark the boom in permanent capital structures for alternative managers with the launch of KKR Private Equity Investors in 2006.

The onset of the credit crunch over the past year has resulted in a reduction in the number of large fund IPOs and listings of closed-ended vehicles that have been a hallmark of Guernsey’s fund industry over the past couple of years. By contrast, the island is seeing a growing number of structures created to capitalise on turbulent market conditions, such as distressed debt funds and private equity vehicles whose focus has switched to a more venture capital-style buy-and-build management approach.

This flexibility has over the years has enabled Guernsey’s fund administrators to build up a wide range of expertise across the alternatives sector and to develop a reputation for creating innovative servicing solutions for new types of product. Thinking outside the box has become a way of life for the industry, one that continues to serve it well.

Gavin Farrell is a partner with Ozannes in Guernsey

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