Overcoming the myth of the passport
By Martin Scott, International Administration Group (Guernsey) – Two years ago, almost to the day, Guernsey was set to receive the Alternative Investment Fund Managers Directive (AIFMD) passport to allow marketing of Guernsey funds across Europe. Then Brexit and politics took over, and the likelihood of the European Union extending the AIFMD passport to third countries now appears remote until the UK and EU have reached a trade agreement with respect to financial services. It therefore appears probable that National Private Placement Regimes (NPPRs) will remain in place for the foreseeable future.
This has actually turned out to be a significant benefit to a jurisdiction such as Guernsey. NPPR has historically made Guernsey popular with asset managers, and the island has continued to attract funds advised by some of the biggest names in the industry, even following the introduction of AIFMD. Using NPPR in key investor jurisdictions, including the UK, Netherlands and Luxembourg, has been viewed by these asset managers as the quicker and simpler option to fundraise.
It is also worth noting that only 3 per cent of alternative investment funds are registered for sale in more than three EU Member States. The indefinite delay in extending the passport has potentially created a real opportunity for fund raising to a jurisdiction such as Guernsey. The uncertainty created by Brexit is making UK asset managers in particular look at ways to future-proof their fund structures – and Guernsey offers an answer.
Asset managers who have funds domiciled in the UK, and are therefore in the firing line, are reviewing their options and considering the benefits of using a Guernsey fund structure. This is of most interest to those who have no requirement to market on a pan-EEA basis, as NPPR means they can continue to target their primary markets in the region on an individual basis, making marketing simpler, and reducing the subsequent costs and disclosure requirements applicable under the directive.
When it comes to AIFMD, asset managers have to consider how to bear the additional costs associated with being a fully AIFMD-compliant fund and even more importantly, who should bear these costs. For example, if the AIFMD reporting costs are apportioned solely to a fund’s EEA investors, then they are incurring higher costs than their fellow investors from outside the region. As reporting requirements are lower under NPPR, the associated costs will be less and should result in greater parity in the costs borne by investors across the fund.
At IAG, we have recently seen new business enquiries from both existing and new clients who are assessing their options in light of Brexit. Many are considering Guernsey as the potential domicile for their next structure, in the light of its proven, smarter, faster distribution capability.