GUERNSEY has built a powerful reputation for fund administration over the past 50 years and attracted a considerable amount of business from the Middle East and North Africa region with a combination of strong infrastructure, expertise and robust yet attractive regulations.
Those credentials were affirmed by a range of recent reports. The IMF commended Guernsey’s high standards of financial regulation, supervision, stability and robust criminal justice framework. The OECD’s Global Forum endorsed the island’s ongoing commitment to tax transparency and exchange of information. And the Financial Stability Board presented a report to the G20 meeting in Cannes, which placed Guernsey within the top tier of jurisdictions adhering to international standards and thereby helping to protect global stability.
Guernsey’s growing reputation saw the island’s net asset value of investment funds under management and administration reach more than £261 billion ($409 billion) at the end of December last year, up 1.6 percent year-on-year. Private equity and venture capital have experienced particularly strong growth, reaching more than £78 billion ($122 billion) at the end of December 2011. Guernsey’s expertise in the private equity space was confirmed by a recent survey conducted by Private Equity News and State Street, in which 61 percent of chief financial officers who responded said the island was their preferred destination for private equity outsourcing.
The growth of Guernsey’s private equity industry is due to a range of attractive factors, according to Fiona Le Poidevin, deputy chief executive, Guernsey Finance. Guernsey administrators and custodians provide services to non-Guernsey funds, but a large part of their business relates to Guernsey open and closed-ended funds, which are now promoted and sponsored by leading institutions in more than 55 financial centres globally. These can be established through a range of flexible investment vehicles such as companies, unit trusts, the Guernsey-pioneered Protected Cell Companies and Incorporated Cell Companies and limited partnerships.
“There is a broad range of administrators in the island, many with specific bespoke IT solutions for alternative assets,” according to Le Poidevin. “These include specialized private equity administrators such as Ipes, Augentius, Aztec, International Administration Group, and Alter Domus, as well as globally recognized names such as JP Morgan, HSBC, Northern Trust, RBC and State Street who can also act as custodians.”
Guernsey also has strength in banking, wealth management and risk management, as well as a network of investment, legal, tax, audit, accounting and actuarial advisers, including multi-jurisdictional law firms and global accountancy companies. This is a powerful network of expertise to draw upon.
In addition, Guernsey also has a reputation for its robust yet pragmatic approach to regulation. All Guernsey schemes are regulated but ‘fast track’ routes have been introduced which allow for quicker fund launches.
Another of the island’s strengths is the ability for Guernsey vehicles to list not just on the London Stock Exchange but exchanges in Amsterdam, Frankfurt, Australia, Toronto and Johannesburg, among others, as well as the local Channel Islands Stock Exchange (CISX), which now has more than 4,300 securities listed. Data direct from the LSE to the end of December 2011 shows that Guernsey remains home to more non-UK entities listed on its markets than any other jurisdiction globally. In addition, last year Guernsey companies received approval to list on the Hong Kong Stock Exchange (HKEx), a sign of the island’s push to diversify away from traditional financial centres into emerging markets.
The Middle East and North Africa region has played a major role in Guernsey’s emerging market focus in recent years, attracting a significant amount of business. For example, Global Investment House has launched Global MENA Financial Assets Limited, a Guernsey closed-ended authorized fund, which raised around $500m and is listed on the London Stock Exchange. The fund is managed by Global Capital Management, one of the largest private equity teams in the MENA region.
And Arab Bank has established Guernsey-domiciled Class B authorized open-ended investment schemes as PCCs with the cells, the AB MENA Feeder Fund, the IIAB Sukuk & Murabaha MENA Fund and the IIAB MENA Feeder Fund.
Guernsey’s attraction for MENA managers also comes, in part, from the level of Shariah expertise on the island. This is illustrated by the fact that last year the locally based Argyll Investment Services launched the World Shariah Funds PCC Limited, a Guernsey-based suite of Islamic-compliant investments, listed on the CISX.
The island becoming home to both Terra Firma and its Chairman, Guy Hands, points to Guernsey being not just an ideal destination for management companies to locate but also an attractive residence for the managers themselves, according to Le Poidevin.
“This is no doubt helped by the fact that Guernsey has a zero rate of corporate tax as standard, no withholding tax on dividends paid, no capital gains tax, no inheritance tax and no indirect sales tax, and personal income remains levied at a maximum of 20 percent, with a cap of £110,000 on non-Guernsey source income or £220,000 on all income,” she says.
There are challenges ahead for Guernsey but the island is set to meet them head on. One issue for the island going forward is that the ‘Zero-10’ corporate tax systems of the Crown Dependencies have come under European scrutiny.
“The Guernsey government expects to be able to finalise our position in the middle of this year, however it has already made clear that we are committed to retaining a regime which is both compliant and competitive. There will be continued tax neutrality for financial services products. Indeed, the exempt regime for the funds industry is in no way under threat and is actually set to be extended,” says Le Poidevin.
“The waters ahead are unlikely to make for plain sailing but we will take the necessary steps to ensure that the conditions remain in place for Guernsey to continue as a leading centre for private equity fund administration into the future.”