The island’s funds sector should continue to flourish this year as traditional and established managers drive growth.
Years of innovation and robust regulation have turned Guernsey into an attractive fund domicile and a true competitor to other major financial centres. The regulator has consistently adapted to the evolving needs of investors to ensure the island retains its allure.
Most notably, the Private Investment Funds (PIF) regime introduced in 2016 has opened a whole raft of opportunities for new managers, allowing the potential fund stars of the future to flourish in Guernsey.
As the domicile’s third largest fund administrator, we have worked with many start-up managers to successfully use this less rigid, more cost-effective route to market to quickly get their fund up and running. One day is all it takes to register and licence a PIF, which helps even the most established managers to more effectively bring their product to market.
Innovative changes to PIF regime
Demonstrating its commitment to adapt to investors’ needs, the Guernsey Financial Services Commission has proposed changes to the PIF regime to make it more user friendly for family offices and sophisticated investors, while keeping protections to safeguard less sophisticated investors.
This will allow managers to set up a PIF without having to appoint a Protection of Investors Law (PoI) licensed manager. Instead, they will have to meet certain conditions relating to investor criteria and provide supporting confirmations from a licensed fund administrator.
Under the draft rules, managers could also set up the PIF as a bespoke private wealth structure restricted to capital from family offices with supporting confirmations from an administrator.
Importantly, these proposed enhancements will not unsettle the regime’s robust foundations, as the current approach to setting up a PIF will remain in place. These changes are a great example of Guernsey’s ability to mix innovation with strong investor protections.
As a PoI licensed fund administrator with a 20-year track record, we can help market participants explore these additional flexibilities to the PIF regime. We believe these proposed innovative changes will enhance Guernsey’s offering for family offices and sophisticated investors and open many more possibilities for market participants.
Just as the island’s regulatory regime has evolved to meet the increasingly diversified demands of investors, we have also continually adapted to our clients’ needs to ensure we provide timely, accurate and independent administration services.
For example, we have worked closely with clients on setting up the increasingly popular sub-funds and co-investment schemes to help them continue to meet investors’ needs. As Guernsey’s largest sub-funds administrator, we have the expertise and knowledge to help managers explore and set up these structures.
New market trends
We are noticing many other trends as Guernsey’s funds industry continues to benefit from the PIF regime.
Managers are raising funds concurrently rather than raising and investing one fund at a time. There is much more flexibility around carry models, with the traditional 8% hurdle increasingly dropped for deal by deal or hybrid models. Many funds now require multiple carry models to be run at each capital juncture.
Negotiating management fees with investors is more commonplace, with the increasing adoption of lower or zero fees in exchange for a higher rate of carried interest.
We expect Guernsey’s funds sector will continue to flourish this year as traditional and established fund managers drive growth in this sector.
Cryptocurrencies are clearly in vogue among investors. We have already seen a number of prospective funds that give investors exposure to this niche asset class – and we expect many more.
Environmental, social and governance (ESG) is fast becoming one of the biggest investment trends globally. We think it will become increasingly important for the island’s funds industry following the March 10 introduction of the EU’s Sustainable Finance Disclosure Requirement, which is the first regulatory attempt to codify ESG disclosure rules.
Technology for transparency
Meanwhile, offshore jurisdictions are facing increasing pressure to demonstrate they are not a tax-haven or just a rubber-stamping fund domicile under new economic substance requirements. Guernsey has clearly proven it can meet these challenges, being home to wealth of knowledgeable professionals who have quickly adapted to the new rules.
We believe the fund services industry can and should play a crucial role here. Our technology-based solution for maintaining economic substance registers for recording Core Income Generating Activities helps ease the complex process of preparing enhanced tax returns.
Our fund administration service can help both established and novice asset managers to navigate these opportunities, challenges and shifting trends. Fund administration is the cornerstone of our single-source solution offering, and our fully integrated solution supports managers with financial information, multi-currency transaction processing and flexible valuation periods.
Our one-stop shop helps asset managers streamline their vendor relationships and benefit from economies of scale.
As an experienced and knowledgeable fund administrator, we also play an important role in helping the island’s financial centre to flourish in the face of growing competition from other jurisdictions.
By continuing to foster new developments, drive innovation and provide a robust regulatory regime, we are confident that Guernsey can continue to be attractive and compete on the global funds stage.
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