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A fresh solution for open-ended funds

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By Dominic Wheatley, Guernsey Finance – Guernsey’s 50 years as a funds centre makes it an ideal jurisdiction in which to nurture innovative open-ended funds, argues Dominic Wheatley from Guernsey Finance.

At a time of unprecedented change in the asset management community, investment houses will be glad to know that Guernsey is a jurisdiction which not only is a well-established international funds domicile but also provides innovative solutions, including for open-ended platforms.

Global client base

Guernsey’s open-ended funds sector includes approximately USD140bn of hedge funds and funds of hedge funds business as well as more traditional equity, bond and money market products. The popular Guernsey open-ended B Scheme is well understood by the investment community for being distributed into many countries around the world including Australia, Hong Kong, Ireland, the Netherlands, South Africa, Sweden and Switzerland.

There is a truly global client base, with promoters such as Ashmore, BlueCrest, Citadel, Credit Suisse, FF&P, Investec, Man Group, Marlborough, M&G, Schroders and Unigestion utilising Guernsey open-ended investment platforms.

Why Guernsey?

The environment in Guernsey is particularly conducive for establishing and servicing open-ended funds: close proximity to both the UK and Europe but outside of the EU; political and economic stability with no external debt; an OECD ‘white list’ jurisdiction which has signed up to US and UK FATCA and the OECD’s Common Reporting Standard; experienced managers, administrators, custodians and support services; flexible company law; access to major stock exchanges; a competitive tax regime and high standards of corporate governance.

Guernsey has a regulatory regime which provides a modern statutory structure for appropriate investor protection. Rules are relatively non-prescriptive (e.g. flexible investment or leverage parameters) and instead rely on disclosure, with lighter touch regulation for experienced investors. A fast-track approval process is available, the regulator is open to applications from new promoters and prime brokers can be located either in Guernsey or elsewhere.

AIFMD

Guernsey funds continue to be distributed to both European and non-European countries: a long-standing flexible  managers not requiring an AIFMD compliant fund, including EU National Private Placement (NPP) regimes; and there is an opt-in regime which is fully AIFMD compliant. This provides a set of options which can be utilised according to specific circumstances. The choice is solely a commercial decision driven by distribution policies and full-blown AIFMD compliance should only be sought if there are particular reasons to do so. Figures from the Guernsey regulator demonstrate the continued popularity of the Guernsey NPP route under AIFMD.

Funds not solely focused on Europe should consider parallel or feeder investment structures whereby EU and non-EU business can be separated to achieve cost efficiencies.

Substance

There is a range of professionals with in-depth expertise in structuring, administering and advising on complex vehicles as well as experience in portfolio and risk management. Some managers, such as BlueCrest, have established their headquarter offices in Guernsey. A strong pool of non-executive directors are held in high esteem by the investment community with regard to the expertise, knowledge and skills which they take to the Boards on which they sit.

Quality of service in Guernsey is evidenced by the fact that providers service $150bn of open-ended funds that are domiciled in other jurisdictions, typically Cayman or Delaware, where there may be local substance challenges.

Conclusion

Guernsey has more than 50 years’ experience in global cross-border fund structuring and distribution and that experience is now helping it provide a fresh solution to meet the challenges facing today’s promoters of open-ended funds.

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

An original version of this article appeared in Investment Europe, October 2014.
 

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