Guernsey and Jersey's funds industries are in a strong position to capture a new wave of exponential growth, but need to act now to modernise and take a strategic view on how to remain relevant, according to a report published by PwC in the Channel Islands.
The report – Asset and Wealth Management Revolution: Putting the Channel Islands Centre Stage – explores the global trends driving rapid growth in asset and wealth management.
It identifies the opportunities and challenges for fund managers, service providers, regulators and policymakers in the Channel Islands, and makes recommendations for the islands' future success.
The report predicts that alternative asset classes will increase sharply as investors diversify to reduce volatility and achieve specific outcomes. It estimates the alternatives' share of global assets under management will more than double from $10.1trn in 2016 to $21.1trn in 2025.
It also anticipates that real assets will show the most rapid growth over the coming decade, with close to $78trn being spent globally on infrastructure between 2014 and 2025, real estate doubling by 2025 to $2.2trn, and private equity expanding annually by 9.8% between 2020 and 2025.
Pointing to the fact that funds in Jersey grew to £265bn in September 2017 and £269bn in Guernsey, Mike Byrne (pictured), Channel Islands Asset & Wealth Management Leader at PwC, commented: "If the predictions in our report come true, we're set for a significant period of global growth in alternatives. However, there's no guaranteed right to share in this growth and the islands must ensure they take all necessary action to capture their fair share."
Key areas of focus
The report, which had input from a cross-section of funds industry leaders across the islands, identifies four interconnected trends that are driving the revolution in the sector – tackling squeezed margins; the need to develop a clear strategy for the future; the importance of scale and operational efficiency; and integrating technology in all areas of the business.
All these areas will have a big impact on the funds industries in both islands, it says, and need urgent attention.
"Our high level of regulatory compliance and tax transparency will serve us well, but we must get better at telling our story in a clear and compelling way," adds Byrne.
"Undertaking detailed reviews of business models and products is vital to ensure that tax structuring, transfer pricing and governance remains fit for purpose.
"Meanwhile, we have a low penetration rate in key markets, specifically in North America, which accounts for over 50 per cent of global assets, and Asia, which boasts the highest predicted growth rates. We must focus on these opportunities, whilst retaining focus on our existing markets of the UK and Europe."
He continued: "In new markets, we need a clear market entry study and be able to present a coordinated and compelling proposition on the relevance of our jurisdiction and how we can add value. The ability to distribute under private placement regimes has served us well post-AIFMD and we must continue to evolve our regulatory frameworks and invest in new and existing relationships with overseas governments and regulators to protect market access.
Technology issues
"As far as fee pressure and investor expectations are concerned, focusing on technology and automation to decouple growth in assets under management from cost increases is key. This focus clearly aligns with each island's population policies and the need to ensure good, sustainable growth.
"The islands have a real opportunity to be an innovation sandbox for many of the large multi-national service providers that operate here and the governments' abilities to offer incentives, such as tax credits, to stimulate and support such investment is compelling. But we must act now."
• The full report, Asset & Wealth Management Revolution: Putting the Channel Islands Centre Stage, can be found here and is based on findings in the PwC global report, Asset & Wealth Management Revolution – Embracing Exponential Change, available here