As the West increasingly looks to the Mena region for new business, Fiona Le Poidevin (pictured), Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry, looks at what the West has to offer in the form of the well-established fund domicile of Guernsey.
As the promotional agency for Guernsey’s finance industry, making a visit to Dubai in the final quarter of the year to exhibit at SuperReturn Middle East has become a familiar part of our marketing activity in recent years.
We are reminding private equity managers in the Middle East that Guernsey has established a reputation as a leading investment funds domicile, possessing a wealth of expertise and first class infrastructure for the structuring, management, administration and custody of not just traditional funds but also alternative and esoteric asset classes.
Indeed, during the past two decades, the sector has seen the balance of business move from being largely retail, equity-traded/ cash-based schemes to predominately institutional and alternative funds. This period has also seen us attract significant business from the Mena region.
For example, Arab Bank, through its subsidiary Arab Bank Fund Managers (Guernsey) Limited, has a number of investment products domiciled in Guernsey. The funds, structured within protected cell companies (PCCs), have been set up to attract investment from institutional clients in the Mena region.
The AB MENA Feeder Fund, the IIAB Sukuk & Murabaha MENA Fund and the IIAB MENA Feeder Fund were each established with legal advice from Mourant Ozanne and are serviced by local administrators Legis and custodians Butterfi eld Bank.
All three are listed on the Channel Islands Stock Exchange (CISX) and were established adhering to Shariah principles. In addition, locally-based Argyll Investment Services was responsible for the launch of the World Shariah Funds PCC Limited, a Guernsey-based suite of Shariah- compliant investments, listed on the CISX. The funds’ legal advice was provided by Ogier; the administrators are Legis.
These examples provide a glimpse into why Guernsey has become a favourite over time among Mena managers, who appreciate the island’s track record and its many advantages.
Infrastructure and expertise
The net asset value of investment funds under management and administration in the island reached more than £271bn ($440bn) at the end of June 2012 – up 20% on the same time two years ago. Private equity and venture capital have also experienced particularly strong growth, reaching more than £80bn ($130bn) at the end of June 2012. Guernsey’s expertise in the private equity space was confirmed by a recent survey conducted by Private Equity News and State Street, in which 61% of chief financial officers who responded said the island was their preferred destination for private equity outsourcing.
Administrators present in Guernsey range from independent, boutique providers to large, multinational organisations, many with bespoke IT solutions. These include specialised private equity fund administrators such as Ipes, Augentius, Aztec, International Administration Group, and Alter Domus, as well as globally recognised names such as JP Morgan, HSBC, Northern Trust, RBC and State Street who can also act as custodians.
This expertise and mature infrastructure means that Guernsey providers are often asked to service schemes domiciled in another jurisdiction, such as the Cayman Islands. Statistics from the Guernsey Financial Services Commission (GFSC) show that for the year to June 2012, the island’s service providers entered into 42 new contracts to provide either management, administration or custody services to non-Guernsey schemes.
A large part of their business relates to Guernsey open and closed-ended funds, which are now promoted and sponsored by leading institutions in more than 55 financial centres globally. These can be established through a range of flexible investment vehicles such as companies, unit trusts, the Guernsey PCCs, incorporated cell companies and limited partnerships.
Guernsey also has strength in banking, wealth management and risk management, as well as a network of investment, legal, tax, audit, accounting and actuarial advisers, including multi-jurisdictional law firms and global accountancy companies.
Guernsey is well placed from a geographical, political and regulatory perspective. Being in a European time zone close to London means that it is easily accessible and convenient for investors and promoters from a wide geographic base. It also means that business can be conducted with the
Mena region – as well as both the Far East and the Americas – during the same working day. As a British Crown Dependency, the jurisdiction also has legislative and fiscal independence and our special relationship with the EU means that Directives do not apply, unless voluntarily accepted.
Our location means we are ideally placed to offer Mena fund managers access to European capital markets. Guernsey structures can list on the CISX – which has more than 4,300 securities listed, Euronext Amsterdam, the exchanges in Frankfurt, Toronto and Australia, as well as the London Stock Exchange (LSE), among others.
Indeed, there are more non-UK entities listed on the LSE markets from Guernsey than any other jurisdiction globally. Guernsey firms also have approval to list on the Hong Kong Stock Exchange – a sign of the island’s push to diversify away from traditional financial centres into emerging markets.
We have established a reputation for our robust yet pragmatic approach to regulation. The GFSC is known for its open-door approach, while also ensuring that Guernsey continues to be recognised as a leader in global regulation and co-operation. For example, “fast track” routes have been introduced, which allow for the speedy launch of funds targeted at professional investors and yet, those investors also have the security of knowing that all Guernsey funds are regulated.
The fact that the island has a pool of experienced and well-qualified non-executive directors reassures investors and promoters that Guernsey service providers are working to the highest standards.
This been affirmed by a range of recent reports. The IMF commended Guernsey’s high standards of financial regulation, supervision, stability and robust criminal justice framework. The OECD’s Global Forum endorsed the island’s ongoing commitment to tax transparency and exchange of information, while the Financial Stability Board presented a report to the G20 meeting in Cannes, which placed Guernsey within the top tier of jurisdictions adhering to international standards and thereby helping to protect global stability.
The EU has approved our zero-10 corporate tax strategy – retaining tax neutrality for all our financial services products. In addition, our specific tax exempt regime for funds has also been extended, while the island’s tax authorities are currently in discussions with a number of jurisdictions from the Mena region regarding entering into Double Taxation Agreements (DTAs).
In the end…
Unsurprisingly, with all these advantages, Guernsey will continue to promote its fund services to the Mena region and continue to build on the positive developments of recent years, which have seen Guernsey-based firms such as fund administrator Louvre Group and law firm Ogier establishing offices in Dubai and Bahrain respectively – in turn helping to showcase what Guernsey has to offer.
An original version of this article was first published in Mena Fund Manager, October 2012.