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Helping Asian fund managers navigate through Europe

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AIFMD has caused Asian fund managers to be more cautious about seeking investment from Europe but Guernsey helps provide a solution, says Dominic Wheatley (pictured), Chief Executive of Guernsey Finance. 

Much focus in Europe in recent years has been on the European Union’s (EU’s) drive for increased regulation, principally through the Alternative Investment Fund Managers Directive (AIFMD).

As a result, promoters and investors from further afield have become more cautious about raising money from within Europe because of what they regard as a growing compliance burden and increased costs.

The Guernsey model

However, rather than being part of the problem, Guernsey is part of the solution because while the Island is in Europe geographically, it is not in the EU and therefore, has not been required to implement AIFMD. Guernsey offers a dual regulatory regime whereby it is possible to continue to distribute Guernsey funds into both EU and non-EU countries. The approach means managers and funds with no connection to Europe can still use Guernsey’s continuing regulatory rules which are free from the requirements and costs associated with AIFMD.

For managers wishing to market into Europe, Guernsey provides a European platform but one which is not actually in the EU. Indeed, the National Private Placement (NPP) route is being favoured by many as it means little or no change to how things were done before AIFMD. Guernsey also has a new opt-in regime which is fully AIFMD compliant for those who require it. For those managers with elements of both EU and non-EU business, parallel or feeder structures can be utilised. In summary, the point is that Guernsey’s dual regulatory regime provides optionality that allows clients to be serviced in the manner most appropriate to their specific circumstances.

Substance

Promoters can achieve true substance in Guernsey fund structures. The infrastructure offers professionals with in-depth expertise in structuring, administering and advising on complex vehicles and structures as well as experience in portfolio and risk management.

The Island plays host to a number of major managers such as Apax, Apollo, HarbourVest, Man Group, M&G, Pantheon, Permira and Schroders, all of whom have their funds domiciled and serviced in Guernsey (with a number also having offices and staff present). Administrators and custodians range from major international names, such as Northern Trust and State Street, to specialist independent service providers.

There is also a plentiful supply of independent non-executive directors who underpin Guernsey’s reputation for high standards of corporate governance.

Global reach

Guernsey’s funds industry now manages and administers more than 1,000 funds valued at nearly half a trillion US dollars, with Guernsey domiciled investment funds distributed to all corners of the globe. Quality of service is evidenced by the fact that Guernsey providers now service US$140 billion worth of open-ended funds which are domiciled in other jurisdictions where there may be local substance challenges.

The Island is a gateway to capital markets and is currently the global leader for non-UK London Stock Exchange (LSE) listings. Guernsey companies can also list on many other international stock exchanges including Euronext, Hong Kong, and Australia amongst others. In addition, the internationally recognised
Channel Islands Securities Exchange (CISE) provides a cost-effective means to access capital or technical listings.
The first Chinese currency focused bond fund, the Renminbi Bond Fund was established in Guernsey in 2007 by Stratton Street Capital LLP as an open-ended fund in a Protected Cell Company (PCC) structure. It is listed on the Irish Stock Exchange.

Conclusion

Managers, including many from Asia, are of the view that regulation is making it especially difficult to market funds into Europe. Guernsey offers a solution based in a European time zone with access to the EU market but without the administrative and cost burden of AIFMD unless required and from a jurisdiction which has significant substance, high standards and a global reach.
 


Dominic Wheatley is Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry.

An original version of this article was published in Asia Asset Management, November 2014.

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