First published in The Financial Times.
There is a saying in the City of London; ‘eggs & bacon – with eggs the hen is involved, with bacon the pig is committed’.
Launching and then floating an investment company with a specialist approach to UK smaller companies in current market conditions is not straightforward. We have seeded the IPO of Onward Opportunities (ONWD LN) with material skin in the game or some like to call it; ‘bacon’.
The Dowgate team and clients’ capital has been committed alongside external investors to lay the foundations for capitalising on inefficient markets in the UK where we see a super-normal return opportunity for clients over the long-term. Launching an investment company from scratch and floating within six months chimes with another city adage ‘Chicken and egg’ – a dichotomy where many clients want to invest, but only when you are larger and established, and it becomes a circular issue.
Solving the problem and floating at a modest launch size as a platform to scale over time has really been made possible by the Guernsey investment community’s flexibility and capability. The key benefits we have discovered were:
1) Guernsey’s heritage in closed ended structures with specialist strategies,
2) The island’s high regulatory standards,
3) quality of the non-executive and advisory network and
4) fiscal policy
Guernsey’s 50-year heritage in closed ended investment structures and private equity style mandates was a key part of the decisioning tree, a specialism in alternative funds that has accelerated over the past two decades. Onward Opportunities Limited (ONWD LN) itself is a specialist mandate applying private equity techniques to public companies through a closed ended investment company structure. There is now c.£300 billion of funds domiciled in Guernsey and that is testament to consistent execution from the island’s advisory community. But it’s not just the numbers that paint the picture, the island has picked up a number of accolades including International Investment’s IFC of the Year 2022, plus other awards in the private wealth and insurance sectors.
Secondly, Guernsey’s close regulatory overlap with the UK has allowed us to garner a London listing to complement ONWD LN’s offshore domicile. This adaptability and regulatory standard has meant clients can access the liquidity of the London markets whilst retaining the offshore status and associated benefits such as a GG SEDOL code. This has proved attractive to prospective investors when pitching in the Channel Islands and beyond. An example of innovative thinking and launching of funds in Guernsey is the listing of the USD5bn Guernsey limited partnership KKR Private Equity Investors LP on the Amsterdam Euronext. This highlighted that Guernsey as a jurisdiction from which funds wishing to list on Euronext did not need to obtain a licence locally because the regulator had ruled that there was already adequate “home” supervision.
The Island’s quality of non-executive network has, in our experience, facilitated the establishment of a board that could set up an investment company and float within 6-months, which is no mean feat. They too have the skills to now be ready to steward our shareholders’ capital as we seek to build out an investment company. The potential to source a board with backgrounds working for the likes of Pershing Square Holdings, Man Group, Liberum and Terra Firma has dovetailed nicely with the UK expertise, especially with the advisory support of Cenkos Securities who have been the corporate adviser to the whole process with Dowgate.
Governance is rightly under increasing focus and high-calibre boards of diverse skill set and depth must be a primary focus for investment companies. This has been complemented with the island’s diverse advisory community that has been built up over the island’s 50 years in closed ended structures – the level of consolidation interest in these advisers is testament to their market position.
Finally, Guernsey’s tax treatment of investment companies can allow managers to deliver a more efficient cost structure for clients by reducing tax leakage. 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 taxes, can allow for a more streamlined approach to an investment company’s cost base and investment performance, allowing the structure to be competitive with that of a UK trust structure.
It was never going to be enough to execute a float in the current market conditions to just try and get ‘involved’, it required commitment from all parties, and the granite-based island of Guernsey has proved to be a rock-solid foundation for such a move. Dowgate are very grateful to the island and its talent pool, and most importantly have very quickly become rather taken with the place.
First published in The Financial Times.