Following the publication of an independent research report by Cerulli Associates – commissioned by Guernsey Finance – on domicile selection for US-based fund managers, Guernsey Finance’s Strategic and Technical Advisor Henry Freeman looks at why Guernsey remains a leading international finance jurisdiction for private capital and alternative investment funds.
In the last year, Guernsey has been the proud recipient of two International Finance Centre of the Year awards from highly respected industry publications – International Investment and Citywealth. This sort of success doesn’t come overnight. It comes from decades of building a reputation for the quality and flexibility of the regulatory environment, the efficiency and expertise of a broad base of service providers, and the substance and experience of industry professionals within the jurisdiction.
So when US-based independent research house, Cerulli Associates, recently published a report providing a number of points for private capital and alternative investment managers shopping for a fund domicile to consider, it was perhaps unsurprising that Guernsey ticked many of the boxes for domicile success. These points include jurisdictional reputation, the breadth and quality of service providers, the efficiency and quality of the regulatory environment, the variety of fund structures available and of course the ability to access global investors.
Guernsey is home to a large and well-established financial services industry and has been a domicile of choice for private capital and alternative funds for over 60 years. This depth of experience has resulted in a healthy ecosystem of service providers, including high-quality fund administrators, managers, legal, accountancy and other professional service firms. Given this environment, fund managers establishing their funds in Guernsey can be confident that they will have access to the expertise and experience required to set up and administer their funds successfully.
In terms of ease of setting-up and managing funds in Guernsey, the jurisdiction has many advantages over other larger jurisdictions such as Luxembourg. Its regulator – the Guernsey Financial Services Commission (GFSC) – is responsible for overseeing the island’s financial services industry. The GFSC is well known for its approachable and cooperative approach due to its pragmatic and flexible regulatory regime. With different regulated fund structures available, depending on the type of investors to which the fund will be marketed, managers can expect an efficient and streamlined process when it comes to obtaining regulatory approval for their funds.
Guernsey has a relatively low cost of incorporation and ongoing compliance monitoring, with a wide range of fund structures including;GP/LP funds,London Stock Exchange listed investment companies,Private Investment Funds (PIFs),TISE (The International Stock Exchange – itself headquartered in Guernsey) listed funds,Protected Cell Companies (PCCs),Holding companies and Special Purpose Vehicles (SPVs).
Guernsey’s tax-neutral status also means that fund investors and managers are not subject to additional taxes when investing in or managing funds that are domiciled in Guernsey.
Guernsey domiciled funds can be marketed and distributed internationally under NPPR (National Private Placement Regime), reducing the need for additional regulation in each country. This means that fund managers can access new markets with greater ease and more cost efficiency.
This is a particularly salient point given the fact that the global investor audience for private capital and alternative strategies continues to grow rapidly. Global private investment assets have grown by 92% between the end of 2018 and 30 June last year, according to the Cerulli Associates’ report.
The report is well timed, as this trend is set to continue. Sovereign wealth funds, pension funds and private wealth are continuing to increase weightings to private equity and debt. In addition, infrastructure, real estate, venture capital and hedge strategies are continuing to diversify from the volatility of listed markets. Informed fund domicile decision-making is important for managers to ensure they will be best placed to attract international investors. Managers would do well to consider Guernsey in their comparative analysis of jurisdictions.
