Supporting the UK’s economic fightback

Written by: David Craik Posted: 08/10/2020

BLCITY_UKeconomyCovid-19 has dealt a devastating blow to the UK economy. But the Channel Islands are primed to help it bounce back

Back in 2016, Capital Economics crunched the numbers and discovered that Jersey’s finance industry acts as a conduit for around £500bn of foreign investment into the UK.

The Jersey’s Value to Britain report also found that Jersey supports an estimated 250,000 British jobs and adds £14bn to the UK economy overall.

And Guernsey is not to be outdone in its contribution. According to a 2015 KPMG report, its funds facilitated £25bn of inward investment into the UK from global investors. 

Those funds will become even more vital now, as the UK tries to steer a path out of the recession caused by the Covid-19 pandemic.

The UK’s gross domestic product plunged by a record 20.4% in the three months to June, as the national lockdown shattered business confidence and kept shoppers away from deserted high streets.

But Jersey and Guernsey remain poised to help the recovery. “Our relationship with the City and the UK is one of partnership,” says Joe Moynihan, Chief Executive of Jersey Finance. “The UK remains a secure and stable jurisdiction and we will continue to act as a major conduit to ensure capital is invested there.”

Guernsey Finance is also supportive. “We attract overseas families, institutional funds and private equity – all looking for solid and diverse investment opportunities. The UK offers that,” says its Chief Executive, Rupert Pleasant.

He adds that funds held in Guernsey are sensing opportunities in commercial real estate, residential property, construction and infrastructure in the UK. 

In June, the UK government pledged a £5bn New Deal package of capital investment into infrastructure projects, from schools to hospitals. 

It also wants to “build back better and greener”. That means another crucial area in the recovery, and something on which the Channel Islands can share its expertise, will be sustainable and impact investment (see panel).

Bigger picture

Pleasant says Guernsey can also help meet the UK government’s aim that the recovery is not just driven by the City and London but by the whole of the UK.

“All our member organisations are spending increasingly more time in Manchester, Liverpool and Edinburgh,” he explains. “We talk with business and investment professionals. It helps guide our clients to the correct investment opportunity.”

Moynihan also highlights the importance of international relationships. “With our global network, we can continue to be the conduit for international funds,” he says. 

“For example, we have an office in the Gulf Cooperation Council (GCC), which sees Jersey as an ‘offshore Britain’. We have good relationships with the British embassies there and can facilitate GCC investments into the UK. A member firm of ours in Dubai may not see an opportunity for Jersey but will make an introduction to a UK firm.”

Jersey can also identify the fund structures of interest to managers putting investment plans together. “There are a lot of UK companies needing capitalisation. As such, there are opportunities for takeovers or direct investment,” Moynihan explains. 

“There are international investors – particularly dollar-based, given the exchange rate – who see the attractiveness of asset investment opportunities in the UK, such as infrastructure and property. 

“There are a lot of investment funds with dry powder. We also have a significant amount of pension business, with 60 million people’s funds using Jersey as a conduit.”

Frances Watson, Partner at law firm Mourant in Guernsey, agrees. “Anyone involved in finance and funds will be looking to see how they can assist and turn this into an opportunity,” she says.

Her Jersey colleague, Partner Felicia de Laat, sees these as digital, technology, healthcare and infrastructure.

Tech expertise

The islands can also share their expertise in the tech sector, given that Jersey has the fastest broadband speeds in Europe and the government-backed Digital Jersey encourages innovative tech to the islands to trial new applications.

For its part, Guernsey Finance says it can help the UK develop regtech, and particularly fintech services.

“We invest in fintech but also adopt it to boost productivity,” says Pleasant. “We can share these skills with the UK financial services industry.”

As the number one domicile for secondary UK listings, Guernsey Finance is also helping UK companies raise money quickly to counteract short-term cash flow issues using cashboxes.

UK plc shares are issued in exchange for redeemable shares in a special purpose subsidiary, incorporated in Guernsey.

BLCITY_BrexitThe International Stock Exchange (TISE), which is headquartered in Guernsey, is also ramping up its marketing to tempt UK SMEs to list to re-energise their business.

“Traditionally, SMEs would look at LSE or AIM markets. But they usually need to be quite far in their life cycle,” says Mark Oliphant, Head of Communications at TISE.

“We are offering those at an earlier stage the chance to list on TISE and scale up. As they come out of lockdown, we want to give them the stability offered by the Channel Islands. It is all about working as part of the British family.”

TISE has had a strong lockdown, with 390 securities admitted to its official list during the first half of the year, up 60% year-on-year. Some – particularly in hospitality, retail and real estate investment trusts – have been trying to refinance in the crisis because of tight cashflows.

Brexit impact

Another potential crisis and key element in the UK’s economic recovery will, of course, be Brexit.

“A no-deal Brexit Damocles may be coming,” says Pleasant. “London, however, will remain the largest financial services market in Europe, and there is a key role we can play in helping it gain access to the continent and vice-versa.”

At present, UK firms have been able to continue to access the EU under financial services passports such as the Alternative Investment Fund Managers Directive. 

That may soon disappear, but both Jersey and Guernsey can continue to help fund managers in the alternative investment space maintain contact through National Private Placement Regimes. 

“We can become a fundamental catalyst in this,” says Pleasant.

Moynihan adds: “We can work with appropriate UK fund managers using Jersey structures and provide them with certainty around access to European investors.”

Certainty is exactly what the UK economy needs. The post-lockdown period offers the islands the chance to demonstrate the value that they add to the UK in tech, ESG, capital flows, networking and fundraising. 

That may not have been fully appreciated in the past, but it certainly will be in the new normal. 

GREENING UP

BLCITY_UKeconomy_greenThe UK has put sustainability and the environment high up on its recovery agenda, including plans to ‘green up’ UK homes and improve the energy efficiency of public sector buildings. 

The expertise the islands have built up in environmental, social and governance (ESG) could be complementary.

TISE, for example, has TISE Green – a separate market segment for green investments, including bonds, funds and trading companies, that enhance or protect the environment. 

It is also looking to expand the segment to incorporate social investing and bonds. 

“We provide verification of a listed company’s green credentials, giving a level of insurance to investors. It facilitates the flow of capital into green or more sustainable investments,” says TISE’s Mark Oliphant. “We can partner with the City to help scale up our ESG impact in the UK.”

Guernsey Finance CEO Rupert Pleasant also predicts substantial inflows of capital into the UK around ESG.
 
“We are a jurisdiction of substance, such as aiming to introduce a green kitemark for insurance-linked securities structures,” he says. “There is a lot of collaboration between us and the UK Green Finance Initiative. As an early adopter, we have a great deal of strategy expertise.”

Indeed, Guernsey is home to the world’s first regulated green fund regime, the Guernsey Green Fund. 

Jersey Finance CEO Joe Moynihan says the island is particularly strong on governance. “Our investment managers have mandates to check the ESG ratings of companies before they make investments,” he states.

Jersey Finance recently teamed up with Andrew Mitchell, Founder of consultancy Equilibrium Futures, to help position itself as a centre of excellence for sustainable finance.

The Jersey Financial Services Commission has also recently launched a consultation on enhancing disclosure and governance requirements for sustainable investments. “We are in a good position to be an exemplar,” says Moynihan.

 


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