Funds review: the Channel Islands march on

Written by: Richard Willsher Posted: 29/10/2018

BL59_funds review illoIt’s been a good year for the investment funds industry in Guernsey and Jersey – not just in the volume of business transacted, but also in terms of innovation. Businesslife takes a look at some of the year’s highlights

Facts and figures 

When it comes to how well the islands’ funds industries have performed in the past year, the numbers tell their own story.

The latest statistics from the Guernsey Financial Services Commission (GFSC) show that the total value of funds is at a five-year high. As at 30 June, total net asset value reached £276.2bn, representing a year-on-year growth approaching two per cent – and an increase of more than £13bn (4.94 per cent) on Q1 2018. 

Just over £168bn of this was accounted for by Guernsey-domiciled closed-ended funds, with open-ended funds clocking in at just over £43bn. There was a definite surge in private equity fund business, which grew by almost £7bn to £112.7bn in Q2. 

Jersey had a similarly strong performance, with figures reaching an all-time record high. The net asset value of regulated funds under administration grew by £15bn during the second quarter of 2018 to stand at £296bn at 30 June. This is despite a dip in Q1, when figures fell slightly to £281bn, before rebounding.

Likewise, the alternative asset classes recorded an increase since the start of the year. Private equity fund values rose by nearly £4bn to £86.5bn, and real estate increased by £2bn to £39.5bn. 

These figures may be boosted by additional funds launched under the Jersey Private Fund (JPF) regime, which aren’t included in the latest total. Towards the end of September, the Jersey Financial Services Commission had authorised 167 JPFs.

Trends

Exploring what’s been happening in more detail, we spoke to several industry professionals. First off, Andrew Boyce, a Partner in the Guernsey office of law firm Carey Olsen, which plays a leading role in bringing funds to market, explains that nine of the 10 largest UK private equity houses all have funds in Guernsey, many of which have created new offerings.

“A lot of what I and our group have been doing is next-generation funds for existing fund promoters. This includes Cinven, Apax and Inflexion, among others, which have all raised new funds,” he says. 

“There’s also been a smattering of new fund managers coming to the market, so we’ve done a few what we call ‘new promoters’ here – first-time fundraisers. Those have been across the asset classes, but probably primarily in the tech space, and some venture capital.”

Also in Guernsey, Paul Smith, Chairman of the Guernsey Investment Fund Association, says that the introduction of the island’s Private Investment Fund (PIF) regime has been well received. Launched in late 2016, it’s designed to allow for a speedy execution of regulated funds targeted at professional investors.

Across the water in Jersey, Nadia Trehiou, a Client Director at offshore fiduciary and administration services provider Estera, points to the JPF as a significant catalyst for new business. 

“It’s been a really successful product for Jersey since it launched. It was, I suppose, a reiteration of legislation that we already had, but it’s now much more streamlined. There’s a 48-hour turnaround that the regulator is undertaking and we’ve seen that being very popular with clients, particularly in the alternative asset space.”

It’s a sentiment that is echoed by Joel Hernandez, a Partner in the Jersey practice at law firm Mourant Ozannes. “The JPF regime has proved an enormous success since its introduction,” he says.

“Our clients consistently cite speed of delivery, cost efficiency and flexibility of the regime as their main drivers. The range of fund promoter clients that have chosen this regime include well-established promoters of private equity, venture capital, real estate, infrastructure, credit and technology funds – although funds of any reputable asset class with no more than 50 investors can use the JPF. 

“The regime has also attracted its fair share of first-time fund promoters wanting to set up their fund in a cost-effective environment,” Hernandez continues. “Narrowly held co-investment structures also feature in the numbers. The fact that the JPF regime can also cater for marketing to European professional investors under the local national private placement regime [NPPR] has also proved very attractive.”

REITs

A key feature of fund activity over the past year has been the listing of real estate funds on The International Stock Exchange (TISE). Rebranded from the Channel Islands Securities Exchange last year, its Group CEO, Fiona Le Poidevin, says its greater visibility has been a factor in attracting new listings, especially of real estate investment trusts (REITs). 

“We’ve listed a number of REITs over the past few years, but we’ve particularly seen growth since the Brexit vote back in 2016. The weakened pound has meant institutional investors saw the UK property/real estate market as an attractive option because effectively they were getting a 15-20 per cent discount on property in the UK.

"So there was suddenly a real influx of capital into the UK, and that was typically invested through a REIT structure because they’re very efficient, for large institutions in particular. 

“A number of our REITs do originate from the Channel Islands in terms of their place of incorporation, but increasingly we see those from England and Wales wishing to be listed on TISE here in the Channel Islands. I think this is a great endorsement of the regime, and ourselves at the Exchange.”

BL59_funds review illo2New opportunities

As we’ve seen, the PIF and JPF have proved popular, but there are other new products and regimes that look set to produce growth for the islands’ fund sectors. Starting with Jersey, Mourant’s Joel Hernandez is bullish about the soon to be introduced Jersey Registered Alternative Investment Fund (JRAIF). 

He expects the JRAIF regime will focus on simplifying application and regulatory processes. “These changes will improve the launching of public funds for professional and/or institutional investors [those that target 50+ investors],” he says. 

“We expect this new regime will carry the hallmarks of the successful JPF regime – in being flexible, and that there will be no restriction on fund type or on the type of asset class. It’s likely to extend to both open-ended and closed-ended vehicles. 

“The main difference will be an emphasis on the regulation of the JRAIF’s manager as opposed to the fund. As we understand it, the Jersey regulator is working on the draft JRAIF Guide and this is eagerly anticipated.”

In Guernsey, Paul Smith says the recent launch of the Guernsey Green Fund has generated a lot of interest as well. The rules for the scheme were announced in June of this year. The Green Fund designation, as outlined by the GFSC, represents ‘a scheme that meets strict eligibility criteria of green investing and has the objective of a net positive outcome on the planet’s environment’. Funds bearing the Green Fund badge are targeted towards investors that have a stated preference for investing in sustainable, eco-friendly companies and projects.

 Smith also points to Northern Trust’s 2017 deployment of blockchain technology for the management and administration of a private equity fund. He believes that there will be further developments using blockchain in future transactions. 

At the time, the island’s Chief Minister, Deputy Gavin St Pier, commented: “As a jurisdiction we continually monitor new technologies, support businesses in developing ground-breaking new ideas and provide a supportive environment where products can not only flourish but be first-to-market.”

Investors

In a discussion of fund activity, it’s vital to keep in mind the investors who supply the money – the lifeblood of the industry. What’s clear from speaking to those involved in the islands’ funds industries is how global their reach has become. 

In May of this year, Guernsey Finance announced that, through the island, fund managers can access 80 per cent of global wealth. “What this means is that we’re recognised and known to these jurisdictions,” says Carey Olsen’s Andrew Boyce. “Guernsey has been used in structures to access investors or investments in the UK, Europe, US, Middle East and Far East.” 

Fiona Le Poidevin at TISE endorses this view. “Our investor base is very international. While typically, the islands’ investor base tends to be institutions, we see – particularly when it comes to REITs – sovereign wealth funds, pension funds and insurance companies from all over the world.  

“We’ve seen consortiums with clients from the Middle East, the US, Africa and Asia. Increasingly, we see family offices and high-net-worth individuals coming into these structures. So, some of them are more closely held by a smaller number of very large institutions or sovereign wealth funds, and then others are slightly more widely held by a larger number of very sophisticated high-net-worth individuals.”

Considering this wide mix of investors now choosing the islands’ funds – and the range and flexibility of the regimes on offer to them – the industry seems to be in rude health. 

However, the islands are keenly aware of the competition from other jurisdictions and are continually innovating in terms of governance, scheme offerings and technology deployment. 

There’s bound to be rivalry between the islands, but together they add up to a global force in fund issuance, management and administration. This success attracts more business in a virtuous circle that looks set to continue for the foreseeable future. 


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