By James Orrick, MD, Private Equity Administrators, Guernsey
“I try not to get involved in the business of prediction. It’s a quick way to look like an idiot.” So said British author Warren Ellis.
The final months of 2016 were particularly interesting, with the UK in a constitutional crisis and potential civil disorder in the US. Whether the UK Parliament will vote against invoking Article 50 is unknown. The future beyond Brexit is hazy. The fallout from the newly elected Trump presidency is just unfolding.
All of this might seem to place Warren Ellis’s thoughts on future-gazing firmly in the ‘too true’ pile. Nonetheless, plan for the future we must, so here are a few predictions for how 2017 may unfold for the Channel Islands’ funds industries.
Regulation here to stay
Whether we’re talking about the potential outcomes of MiFID II and MiFIR, the impact of BEPs, the OECD’s Common Reporting Standard (CRS), or the final implementation of AIFMD passporting, 2016 saw regulation becoming the industry norm.
The funds industry should continue to meet these requirements efficiently and with agility, so embracing technology in 2017 is a must. Over the past 12 months, the fintech and regtech industries have hatched solutions to evolving reporting requirements, which are enabling fund administration outfits to remain competitive globally.
What's interesting is seeing where the regulators sit with this evolving environment. Guernsey’s new manager-led product (MLP) and Private Investment Fund (PIF) and Jersey’s incoming JRAIF and Very Private Placement Fund are strong examples of new product developments that are responding to industry demand.
When it comes to BEPs, our message that Jersey and Guernsey weren’t its source must be pronounced. We are actively engaged in its development as part of the 101 countries that have signed up for the reporting – meanwhile, competitors such as the BVI and Cayman have yet to do so.
And overall, while we must be at the forefront of the latest disclosures, we must take care when deciding what is in the public interest versus what’s interesting to the public.
New meaning for ‘flight to quality’
The emphasis on factors that define the safety or quality for which Jersey and Guernsey are known will shift slightly in 2017. For years, we have pointed to our highly regulated, expert and professional offerings and laws that shape our funds industries, as well as to our political stability.
But 2016 saw a shift in investor decision-making that will become more entrenched in 2017. Yes, fund performance remains a core factor. However, the quality of reporting, risk management considerations and appropriate policies and procedures are areas that investors question.
Our talent and expertise are critical USPs. Make no mistake, our highly-skilled gatekeepers have a role in determining a fund’s success and the manager’s ability to raise successor funds. In the evolving regulatory climate, you choose a jurisdiction with poor-quality of personnel at your peril.
Continuing to draw talent, whether home-grown or from beyond our shores, will bolster our substance. Our political stability might not have appeared so unique at the beginning of 2016. With the onset of 2017 heralding a refreshed UK government, Brexit and the new Republican US President, there is strength in our stability. There is also strength in the close accessibility of our government representatives, which enables change to happen quickly when it’s needed.
While the Panama scandal placed pressure on Guernsey and Jersey, the detail revealed our strengths and substance. Our high levels of efficient and transparent regulation can ably assist with fund migrations out of jurisdictions that are defending money-laundering, tax evasion and poor transparency accusations.
In with the new
Meanwhile, this potentially unpredictable financial landscape will see ongoing growth in private equity across the islands in 2017.
Pointing to its very nature as an ‘investment style’ as opposed to being a certain asset type in itself, a recent Palico survey of 106 limited partners suggests that 70 per cent of PE investors will increase their 2016 allocation relative to other investments, demonstrating PE as an ever-popular vehicle.
As this industry’s strong rapport with the diverse product offering and flexibility that’s available in Guernsey and Jersey looks set to remain, 2017 looks like being another strong year.