Channel Islands Funds Forum: A Sharper Focus

Posted: 10/10/2017

CIFF2017_openerThe largest annual pan-Channel Island funds event brought together high-calibre speakers and senior delegates to hear about the most-pressing issues in Guernsey and Jersey’s funds industries

As uncertainty abounds in the political sphere, the Channel Islands’ funds industries keep growing, but is this success built on past strengths or is the sector ready to face the challenges that lie ahead? These and many more searching questions put funds in Guernsey and Jersey in sharper focus at BL’s Channel Islands Funds Forum 2017.

Held at the Radisson Blu Hotel in St Helier on 27 September, the Forum – produced in partnership with PWC – was attended by 150 leading members of the Channel Islands’ funds industries. The event was sponsored by Appleby, JTC Fund Services and Optimus Group, and supported by Altair, Puritas and Rossborough Professional Risks.

This year, the Forum was the biggest ever, both in terms of delegate numbers and because it featured a pre-conference seminar from Preqin, data and intelligence providers to the alternative assets industry.

CIFF2017_Tom Carr and Amy BenstedAmy Bensted, Head of Hedge Funds, and Tom Carr, Head of Real Assets Products at Preqin (both pictured left), opened the day by looking at how the alternative assets industry has evolved over the years. In his round-up of the past 12 months, Carr examined institutional investors’ portfolios.

“It’s a fast moving industry with change happening all the time,” he said. “In recent years, institutional investors have moved into a wider range of alternative asset classes.”

The big story of 2016 was that fundraising levels had returned to the peaks seen in 2008, and this year is already looking strong, but according to Carr “capital is becoming concentrated among fewer funds and managers”.

Although there has been a reversal of the net outflows of 2015/16 to inflows of $25bn this year, the medium-term outlook remains mixed and there are warnings for hedge funds.

“An increasing number of investors are planning to reduce their exposure to hedge funds,” said Bensted. “Over a three-year time frame, the largest proportion of investors, 30 per cent, plan to reduce this exposure.”

Funds: the story so far

Following a short break, Nick Kirby, Editor in Chief of BL magazine, welcomed delegates to the main conference before introducing the day’s first panel event, a look at the ‘story so far’, rounding up the past 12 months in the Channel Islands’ funds sectors.

Moderated by Ben Robins, Partner at Mourant Ozannes, the panel began their look back over the year by discussing changes to the islands’ regulatory regimes.

Emma Bailey, Director of Investment Supervision and Policy Division at the Guernsey Financial Services Commission, highlighted the introduction of Guernsey’s new manager-led regime. “The regime was introduced in May 2016 and allows the licensing of a general partnership in one day, with no regulation on the fund, all of it being at manager level.”

From a Jersey perspective, Mike Jones, Director of Policy at the Jersey Financial Services Commission, pointed to the publication of the AML handbook and Jersey Private Placement Funds as examples of beneficial work that’s been completed in the past year or so.

Fiona Le Poidevin, CEO of The International Stock Exchange Group (TISE), explained that new Chapter 7 rules “mean we can now cater for pretty much any investment vehicle structure”. Highlighting TISE’s success, she said that it had “seen a 45 per cent increase in new securities listing, a lot of which has come from private equity”.

This good news was slightly tempered by discussion of Luxembourg, a theme that resurfaced throughout the day. “Luxembourg is a threat, but has a lot of headwinds, including tax harmonisation,” said Michael Johnson, Head of Fund Services at Intertrust. “A lot of their products are fairly new and so aren’t tried and tested.”

Robins moved the discussion on to fintech and crypto funds. All the panellists agreed that the islands have moved quickly to explore these areas – but, beyond investing, Fiona Le Poidevin warned about the effects they could have on the way the sector works. 

“There’s a lot more going on than just blockchain, and we have to stay on top of it all,” she said. “I don’t think people have grasped how fintech will change the way the industry works here in the islands.”

The bigger picture

The conference moved from regulatory regimes to a look at the ‘Global Political Landscape and its Impact on Funds’. Light-hearted in tone but serious in substance, this was a talk in which Mark Boleat, Deputy Chairman, Policy and Resources Committee, City of London Corporation, explored the volatile geo-political landscape that’s generating enormous uncertainty in the world.

Beginning with global political uncertainty, which has been supercharged by the US and North Korea, Boleat questioned whether this was all so different from 20 or 30 years ago, when war raged in Europe. 

Politics aside, he highlighted two trends that should be of greatest concern to all – the fact that “lies are now more accepted than they used to be” and that “leaders are increasingly chosen by extremists rather than elected representatives”. The result, he said, is that “we’re giving power to the wrong people”.

Pointing out that the UK could have a Labour government in the near future and that Brexit is the UK’s “biggest non-wartime decision since World War 2”, he described the UK’s political situation as “astonishingly unstable”. But he added: “Jersey is in as good a place as it can be. Tax is in the right place and we’re doing well on Brexit.”

CIFF2017_RobMellorTax matters

Following on from the examination of the political landscape, Rob Mellor (pictured right), Tax Partner at PWC, gave a tax update, focusing on managing risk in an ever-changing world.

“Tax authorities are getting smarter and using data, which means the tax risk is increasing,” he explained. “We’ve also got the push for transparency with FATCA , MiFID II and AIFMD reporting. Data is being shared and mined.”

With the new corporate criminal offence in the UK in the same vein as other initiatives focusing on corporate governance, he warned: “The tax authorities see your tax attitude as reflective of your entire corporate attitude.”

Turning to BEPS, Mellor asked whether fund directors “are aware of where the tax risk is”. And on Brexit, he explained: “A whole list of tax issues fall out of Brexit, and UK fund managers are waiting to see how ESMA deals with them.”

A fascinating session generated a number of questions and brought the morning to a close. Delegates left for lunch looking forward to the next panel discussion, promising a view of the islands from the outside. 

The outside view

Moderated by Lisa Cawley (pictured below with Gurpreet Manku and Cathy Pitt, centre), Partner at law firm Kirkland & Ellis, the panel began by exploring experiences structuring through the Channel Islands. 

Gurpreet Manku, Assistant Director General at the British Private Equity & Venture Capital Association, described the development of the organisation’s relationship with the islands.

“We started working with the islands in 2014 when they were going through the process of applying for a third-country passport. Over time, that relationship has developed and we’ve started working together on BEPS, the UK’s register of persons of significant control, and now Brexit. 

CIFF2017_Gurpreet Manku, Cathy Pitt and Lisa Cawley“There are so many legal, regulatory and tax changes out there, when you have a broad network, it’s much easier and efficient to get answers.”

Cawley brought the discussion round to the threats posed by competition. “In Continental Europe, there’s a tendency to lean towards Luxembourg. The introduction of the RAIF shows it’s trying to become less complicated but, if successful, it could be a threat,” she said.

Concluding the discussion with her views on governance, Cathy Pitt, Partner at CMS Cameron McKenna Nabarro Olswang, looked at the role of directors. “There’s a growing swell of opinion on corporate governance and the need for directors to do a good job,” she said. “People see governance as really important and want to see directors challenging the manager.”

Agreeing that the islands are strong on governance, the panel also suggested they need to be ready to answer questions about the “problems that are out there” when promoting the islands abroad.

The islands respond

The Channel Islands were offered a response in the next panel session, moderated by Mike Byrne, Chairman of the Jersey Funds Association and Partner at PwC.

Starting with the view that there’s no point in having competition between the islands, Paul Smith, Chair of the Guernsey Investment Funds Association, took the conversation towards Brexit and its effects. “Brexit is driving people to Luxembourg, but it has its own problems, so we can’t be complacent and need to keep on pushing.”

The arrival of a number of megafunds in the islands provoked a note of caution from Gavin Farrell, Partner at Ferbrache & Farrell. “We do see the herd mentality, but don’t want to be seen as only for very large funds.” 

Achieving this means promoting the islands which, according to Andrew Weaver, Partner at Appleby, means knowing their strengths. “We’re good at emphasising our strengths and playing to them. The islands are building a reputation in management strength and we should be using intermediaries to disseminate the message,” he said.

Luxembourg was acknowledged as a threat with a big marketing budget. But Paul Smith felt the islands could look beyond Europe. “We’ve been so focused on Europe that I think we now need to start focusing on the rest of the world. We need to be available to other promoters,” he said.

The session ended with a look at the islands’ positives. While regulation and fintech were mentioned as opportunities, the panel agreed that flexibility was the greatest strength.

Money flows

CIFF2017_Scott Spencer and Paul WilkesPaul Wilkes, Group Partner at Collas Crill (pictured with Scott Spencer, far right), had the task of grilling Scott Spencer, Senior Investment Manager at Ravenscroft, in the penultimate session of the day. 

Examining the world’s money flows was always going to be a broad topic and Scott took delegates from the main political uncertainties of our time via China’s aviation industry to biotech, cloud tech and big data. 

From genetically engineered cures for cancer to the takeover of TV by Silicon Valley tech giants, there hardly seemed to be a sector that Spencer hadn’t analysed. 

Analysis aside, he rounded off the session with a reminder that, in times of political uncertainty, it’s the basics that matter. “You can’t invest for politics, but if there was a crash, we’d invest according to the things we understand people have to do – eat, drink and brush their teeth.”

The road ahead

The Channel Islands Funds Forum was brought to a close with a look into the future, as Adam Moorshead, JTC Group’s Managing Director - Guernsey, asked the panel to discuss the biggest challenges and opportunities in the coming year.

Christopher Griffin, Counsel at Carey Olsen, felt that Jersey should target specific regions. “We should do more to raise our profile in the Middle East,” he said, before pointing out that the JFSC was doing all it could to make the island more attractive. 

Niamh Lalor, Partner at Ogier in Jersey, continued with the theme, suggesting that while the tools are there, they need to be put to use. “Asset classes are becoming increasingly diverse, but we must ask ourselves whether we’ve done enough to promote ourselves as a jurisdiction.”

CIFF2017_delegatesAccepting that more can always be done to promote the islands, Dominic Wheatley, Chief Executive of Guernsey Finance, pointed out the value of stability. “In this unsettled world, the Channel Islands offer a stable environment and product. In 12 months’ time, the islands will still look stable, and investors like the certainty that comes from stability.”

Amy Bryant, Chief Operating Officer of Jersey Finance, picked up on the theme of new markets. “If more funding were available to Jersey Finance and Guernsey Finance, would we use it to counter Luxembourg? Some, yes, but we’d use a significant proportion for geographic diversification. We’d want to invest more in Africa and Asia.”

Moorshead moved the conversation on to blockchain, and Niamh Lalor focused on its potential as a technology to be used in the funds sector. “One of the first things a client sees is customer due diligence, and if they have to do it four times, it’s off-putting. If we can use technology to streamline this, then that’s an opportunity.”

After discussing business development, Moorshead brought the session and the day to a close with a strong message for delegates to take back to the office. “It’s crucially important that we’re internally self-critical and aware of the risks, but our external message has to be positive, loud and proud.”

With those words ringing in their ears, delegates broke for networking drinks and deeper discussion of the issues covered during the day.

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